Exercise 10-6 Kimball Equipment sells equipment to sports enthusiasts. Doug Kimball, the company’s president, just received the following income statement reporting the results of the past year. Doug is concerned that two of the company’s divisions are showing a loss, and he wonders if the company should stop selling baseball and basketball gear to concentrate solely on soccer gear. Prepare a segment margin income statement. Fixed cost of goods sold and fixed operating expenses can be traced to each division. (If the amount is negative then enter with a negative sign preceding the number, e.g. -5,125 or parenthesis, e.g. (5,125).) This study source was downloaded by 100000750459192 from CourseHero.com on 04-14-2025 18:49:47 GMT -05:00 https://www.coursehero.com/file/61261901/Exercise-10-6docx/ Doug should not close the Baseball Division, since it has a positive segment margin. Closing the Baseball Division will result in a $85,000 decrease in total operating income. The Basketball Division generates a negative segment margin, and the company can save $15,000 if it is closed. However, the first step would be to see if the division can be made profitable. Doug wants to change the allocation method used to allocate common fixed costs to the divisions. His plan is to allocate these costs based on sales revenue. Will this new allocation method change your decision on whether to close the baseball and basketball divisions? Changing allocation methods will not change the decision on which division to close. Common fixed costs should not be allocated to divisions when making decisions whether to close a division. This study source was downloaded by 100000750459192 from CourseHero.com on 04-14-2025 18:49:47 GMT -05:00 https://www.coursehero.com/file/61261901/Exercise-10-6docx/ Powered by TCPDF (www.tcpdf.org)
