High Strokes Inc. produces two types of rowing machines, the Deluxe and the Regular models. A recent segmented income statement is shown below.

RegularDeluxeTotal__

Sales$160,000$240,000$400,000

Less: Cost of goods sold120,000160,000280,000

Contribution margin40,00080,000120,000

Less:

Direct fixed costs10,00020,00030,000

Common fixed costs32,00050,00082,000

Total fixed costs42,00070,000112,000

Net income (Loss)$( 2,000)$10,000$8,000

Determine if High Stokes should drop the Regular model and the amount of loss if any.

1. No, they should not drop the Regular model. The net profit is $8,000
2. No, they should not drop the Regular model. The net profit is $10,000
3. Yes, they should drop the Regular model. The net loss is $30,000
4. Yes, they should drop the Regular model. The net loss is $2,000