Gillaspie Brothers Outfitters sells equipment to outdoors enthusiasts. Sam Gilla

Question

Gillaspie Brothers Outfitters sells equipment to outdoors enthusiasts. Sam Gillaspie, the company’s president, just received the following income statement reporting the results of the past year.

Sam is concerned that two of the company’s divisions are showing a loss, and he wonders if the company should stop selling hunting and fishing gear to concentrate solely on camping 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).)

Hunting Camping Fishing Total Sales revenue $1,270,000 $3,630,000 $2,389,000 $7,289,000 Variable cost of goods sold 856,000 2,359,500 1,921,600 5,137,100 Fixed cost of goods sold 115,700 188,700 166,300 470,700 Gross profit 298,300 1,081,800 301,100 1,681,200 Variable operating expenses 171,200 580,800 238,900 990,900 Fixed operating expenses 79,800 84,700 73,500 238,000 Common fixed costs 60,500 130,000 97,700 288,200 Operating income ($13,200 ) $286,300 ($109,000 ) $164,100

Explanation / Answer

Segment Margin income statement is prepared as under:

Segment Margin Income Statement Hunting Camping Fishing Total Sales revenue 3630000 3630000 Variable cost of goods sold 23,59,500 2359500 Fixed cost of goods sold 1,88,700 188700 Gross profit 10,81,800 1081800 Variable operating expenses 5,80,800 580800 Fixed operating expenses 84,700 84700 Segment Margin    4,16,300 416300 Common fixed costs 2,88,200 Operating income 1,28,100

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