Magellan & Columbus, Ltd. manufactures boats and personal watercraft. The company operates three separate divisions: yachts, sailboats, and jet skis. The company’s latest income statement is presented by product line as follows:

Required

a. Prepare a segment margin income statement showing each of the three divisions. Fixed cost of goods sold and fixed operating expenses can be traced to each product line.

b. Chris Columbus, CEO, is concerned about the Jet Ski division’s operating loss; he wants to close the division to save money. Do you support his decision? Why or why not?

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Yachts Sailboats Jet Skis Total Sales revenue $50,000,000 $24,000,000 $6,000,000 $80,000,000 Variable cost of goods sold Fixed cost of goods sold 25,000,000 14,000,000 4,200,000 43,200,000 9,000,000 4,600,000 700,000 14,300,000 Gross profit Variable operating expenses Fixed operating expenses Allocated corporate costs 16,000,000 5,400,000 1,100,000 22,500,000 7,500,000 1,500,000 627,000 9,627,000 3,600,000 1,000,000 300,000 4,900,000 3,750,000 1,800,000 450,000 6,000,000 Operating income $ 1,150,000 $ 1,100,000 $ (277,000) $ 1,973,000