Segment elimination decision | Accounting homework help

Segment elimination decision

Lockett Company operates three segments. Income statements for the segments imply that profitability could be improved if Segment A were eliminated.

LOCKETT COMPANY Income Statements for the Year 2009
Segment	A	B	C
Sales	$191,000	$251,000	$347,000
Cost of goods sold	(147,000)	(99,000)	(200,000)
Sales commissions	(19,000)	(36,000)	(24,000)
Contribution margin	25,000	116,000	123,000
General fixed oper. exp. (allocation of president’s salary)	(45,000)	(51,000)	(46,000)
Advertising expense (specific to individual divisions)	(4,000)	(8,000)	0
Net income	($24,000)	$57,000	$77,000

Required

a. Explain the effect on profitability if Segment A is eliminated.

b. Prepare comparative income statements for the company as a whole under two alternatives: (1) the retention of Segment A and (2) the elimination of Segment A.