AudioMart is a retailer of radios, stereos, and televisions. The store carries two portable sound systems that have radios, tape players, and speakers. System A, of slightly higher quality than System B, costs $22 more. With rare exceptions, the store also sells a headset when a system is sold. The headset can be used with either system. Variable-costing income statements for the three products follow System A System B Headset $ 44,700 $ 32,700 $ 7,500 Sales Less: Variable expenses 19,700 25,700 2,700 Contribution margin $25,000 $7,000 $4,800 Less: Fixed costs 9,900 17,600 3,000 Operating income (loss) $15,100 $(10,600) $1,800 * This includes common foxed costs totaling $17,600, allocated to each product in proportion to its revenues. This includes common fixed costs totaling $17,600, allocated to each product in proportion to its revenues. The owner of the store is concerned about the profit performance of System B and is considering dropping it. If the product is dropped, sales of System A will increase by 28%, and sales of headsets will drop by 26%. Round all answers to the nearest whole number. Required: 1. Prepare segmented income statements for the three products using a better format 2. CONCEPTUAL CONNECTION: Prepare segmented income statements for System A and the headsets assuming that System Bis dropped. Should B be dropped? 3. CONCEPTUAL CONNECTION: Suppose that a third'system, System C, with a similar quality to System B. could be acquired. Assume that with the sales of A would remain unchanged, however, C would produce only 80% of the revenues of B, and sales of the headsets would drop by 10%. The contribution margin ratio of Cis 50%, and its direct fixed costs would be identical to those of B. Should System B be dropped and replaced with System C? Refer to the list below for the exact wording of an amount description within your income statement Amount Descriptions Add: Common fixed cost Add: Direct fixed cost Add: Variable expenses Contribution margin Less: Common fixed cost Less: Direct fixed cost Less: Variable expenses Operating income Operating loss Sales Segment margin f om within your income talent Round your anger to the ear dollar pulpenes povember 1. Prepare segmented income statements for the three products Retothest of Amount Descriptions for the exact wording o Autoart System A System and Headset S SB Heat P(a) Prepare segmented income statements for System A and the headsets assuming that System B is dropped. Refer to the list of Amount Descriptions for the exact wording of text items within your income statement. Round your answers to the nearest dollar Input expenses as positive numbers. (Note: Be sure to complete 2(b) below the statement.) Audio Mart Segmented Income Statement System A and Headset System A Headset Total Suppose that a third system. System C, with a similar quality to System B, could be acquired. Assume that with the sales of A would remain unchanged, however, C would produce only 80% of the revenues of B, and sales of the headsets would drop by 10%. The contribution margin ratio of C is 50%, and its direct fixed costs would be identical to those of B 3(a) Prepare segmented income statements for System A System C and the headsets. Refer to the list of Amount Descriptions for the exact wording of text items within your income statement Round your answers to the nearest dollar. Input expenses as positive numbers. (Note: Be sure to complete 3(b) below the statement.) AudioMart Segmented Income Statement System A System C, and Headset System A System Headset Total
