Justa Coporation produces and sells three products, A, B, and C. The three products are sold in a local market and in a regional market. At the end of the first quarter of the current year, the following income statement was prepared:

Management has expressed special concern with the regional market because of the extremely poor return on sales. This market was entered a year ago because of excess capacity. It was originally believed that the return on sales would improve with time, but after a year, no noticeable improvement can be seen from the results as reported in the quarterly statement.
In attempting to decide whether to eliminate the regional market, management gathered the following information:

All fixed cost is based on a prorated yearly amount. All administrative expense and fixed manufacturing expense are common to the three products and the two markets and are fixed for the period, whether a market is eliminated. Remaining marketing expense is fixed for the period and separable by market. All separable cost will be eliminated with the dropping of a market.
Required:
(1) Prepare the quarterly income statement showing contribution margin by market and in total.
(2) Assuming there are no alternative uses for Justa Corporation's present capacity, should the regional market be dropped? Why or why not?
(3) Prepare the quarterly income statement showing contribution margin by product.
(4) A new product to replace Product C can be ready for sale next year if Justa Corporation continues its research. The new product can be produced by converting the equipment presently used in production Product C. The conversion will increase fixed costs by $10,000 per quarter. Calculate the minimum contribution margin per quarter for the new product if Justa Corporation is to be no worse off financially than at present.

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LocalRegional $1,300,000 $1,000,000 $300,000 1010,000 775,000 235,000 290,000 225,000 65,000 .. 105,000 60,000 45,000 Total Sales.... Cost of goods sold. Gross profit Marketing expense Administrative expense. 40,00012,000 157000 100,000 57000 Operating income133000 S 125,000 8.000 52,000 Product A Product B Product C $500,000 60% 3% $400.000 70% 2% $400,000 60% 2% Sales Variable manufacturing cost as a percentage of sales . Variable marketing cost as a percentage of sales Sales by Markets Local Product Regional $400,000 $100,000 100,000 100,000 300,000 300,000