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Exercise 6-14B Segment elimination decision Reid Company operates three segments. Income statements for the segments imply that Reid could improve profitability by eliminating Segment X. Page 293 REID COMPANY Income Statement Year 2 Segment X Sales $ 46,000 Cost of goods sold (36,500) Sales commissions (6,500 Contribution margin 3,000 General fixed oper. exp. (allocation of president's salary) (10,000) Advertising expense (specific to individual segments) (1,500) Net income (loss) $ (8,500 Y $125,000 (41,000) (11,000 73,000 (10,000) (9,000) $ 54,000 Z $100,000 (42,500) (10,000 47,500 (10,000) $37,500 Required a. Explain the effect on Reid's profitability if Segment X is eliminated. b. Prepare comparative income statements for the company as a whole under the two alternatives: (1) Segment X is retained or (2) Segment X is eliminated. Problem E6-14B E6-14B $ Reid Company Income Statements Segment Sales 46,000 || 125,000 Cost of Goods Sold (36,500) (41,000) Sales Commissions (6,500) (11.000) Contribution Margin 3,000 73.000 General Fixed Operating Expenses (10,000) (10,000) Advertising Expense" (1.500) (9,000) Net Income (Loss) (8,500) 54.000 100,000 (42,500) (10,000) 47,500 (10,000) Totals 271,000 (120,000) (27,500) 123,500 (30,000) (10,500) 83,000 $ 37.500 *Allocation of President's salary **Specific to Individual Divisions Totals w/out X Differentials Sales Cost of Goods Sold Sales Commissions Contribution Margin General Fixed Operating Expenses Advertising Expense" Net Income (Loss) Differential Income: Conclusion

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