Jackson Brothers Instruments Sells Stringed Instruments

question 84

Essay

Jackson Brothers Instruments sells stringed instruments.Trent Jackson,the company's president,just received the following income statement reporting the results of the past year.
Banjos Guitars Fiddles Total
Sales revenue $1,250,000 $3,600,000 $2,380,000 $7,230,000
Variable cost of goods sold 850,000 2,340,000 1,904,000 5,094,000
Fixed cost of goods sold 115,000 188,000 166,000 469,000
Gross profit 285,000 1,072,000 310,000 1,667,000
Variable operating expenses 170,000 675,000 238,000 1,083,000
Fixed operating expenses 85,000 80,000 83,000 248,000
Common fixed costs 40,000 110,000 77,000 227,000
Operating income $10,000 $ 207,000 $88,000 $ 109,000
Trent is concerned that two of the company's divisions are showing a loss,and he wonders if the company should stop selling Banjos and Fiddles to concentrate solely on guitars.
Required
a.Prepare a segment margin income statement.Fixed cost of goods sold and fixed operating expenses can be traced to each division.
b.Should Trent close the banjos and fiddles divisions? Why or why not?
c.Trent 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 guitars and fiddles divisions? Why or why not?

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Definitions:

Unnecessary Waste

Refers to materials or resources that are excessively consumed or not utilized efficiently, leading to avoidable loss or expense.

Inventory

Merchandise on hand (not sold) at the end of an accounting period.

Work Around Products

Alternative solutions or products developed to circumvent problems or limitations in existing processes.

Lean Manufacturing

An organized approach for reducing waste in a manufacturing system without compromising on productivity.