Keep or Drop 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 $18 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 Sales $44,800 $32,000 $7,900 Less Variable expenses 20,200 25,700 3,400 Contribution margin $24,600 $6,300 $4,500 Less Fixed costs 10,100 17,900 2,700 Operating income (loss) $14,500 $(11,600) $1,800 This includes common fixed costs totaling $17,900, 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 32 , and sales of headsets will drop by 26 Round all answers to the nearest whole number Required Question Content Area 1 Prepare segmented income statements for the three products Round your answers to the nearest dollar Input expenses as positive numbers AudioMart Segmented Income Statement System A, System B, and Headset System A System B Headset Total Contribution marginOperating incomeSalesSegment marginSales $Sales $Sales $Sales $Sales Add Variable expensesLess Variable expensesLess Variable expenses Less Variable expenses Less Variable expenses Less Variable expenses Less Variable expenses Contribution marginDirect laborOperating incomeSegment marginContribution margin $Contribution margin $Contribution margin $Contribution margin $Contribution margin Add Direct fixed costLess Direct fixed costLess Direct fixed cost Less Direct fixed cost Less Direct fixed cost Less Direct fixed cost Less Direct fixed cost Contribution marginDirect laborSalesSegment marginSegment margin $Segment margin $Segment margin $Segment margin $Segment margin Add Common fixed costLess Common fixed costLess Common fixed cost Less Common fixed cost Contribution marginDirect laborOperating incomeSalesOperating income $Operating income 2(a) Prepare segmented income statements for System A and the headsets assuming that System B is dropped Round your answers to the nearest dollar Input expenses as positive numbers (Note Be sure to complete 2(b) below the statement ) AudioMart Segmented Income Statement System A and Headset System A Headset Total Contribution marginOperating incomeSalesSegment marginSales $Sales $Sales $Sales Add Variable expensesLess Variable expensesLess Variable expenses Less Variable expenses Less Variable expenses Less Variable expenses Contribution marginDirect laborOperating incomeSegment marginContribution margin $Contribution margin $Contribution margin $Contribution margin Add Direct fixed costLess Direct fixed costLess Direct fixed cost Less Direct fixed cost Less Direct fixed cost Less Direct fixed cost Contribution marginDirect laborSalesSegment marginSegment margin $Segment margin $Segment margin $Segment margin Add Common fixed costLess Common fixed costLess Common fixed cost Less Common fixed cost Contribution marginDirect laborOperating incomeSalesOperating income $Operating income Suppose that a third system, System C, with a similar quality to System B, could be acquired Assume that with C 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 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 C Headset Total Contribution marginOperating incomeSalesSegment marginSales $Sales $Sales $Sales $Sales Add Variable expensesLess Variable expensesLess Variable expenses Less Variable expenses Less Variable expenses Less Variable expenses Less Variable expenses Contribution marginDirect laborOperating incomeSegment marginContribution margin $Contribution margin $Contribution margin $Contribution margin $Contribution margin Add Direct fixed costLess Direct fixed costLess Direct fixed cost Less Direct fixed cost Less Direct fixed cost Less Direct fixed cost Less Direct fixed cost Contribution marginDirect laborSalesSegment marginSegment margin $Segment margin $Segment margin $Segment margin $Segment margin Add Common fixed costLess Common fixed costLess Common fixed cost Less Common fixed cost Contribution marginDirect laborOperating incomeSalesOperating income $Operating income

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Keep or Drop AudioMart is a retailer of radios, stereos, and televisions. The store carries two portable sound systems that have radios, tape players, and

Keep or Drop

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 $18 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
Sales	$44,800	$32,000	$7,900
Less: Variable expenses	20,200	25,700	3,400
Contribution margin	$24,600	$6,300	$4,500
Less: Fixed costs *	10,100	17,900	2,700
Operating income (loss)	$14,500	$(11,600)	$1,800

*This includes common fixed costs totaling $17,900, 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 32%, and sales of headsets will drop by 26%. Round all answers to the nearest whole number.

Required:

Question Content Area

1. Prepare segmented income statements for the three products. Round your answers to the nearest dollar. Input expenses as positive numbers.

AudioMart Segmented Income Statement System A, System B, and Headset
	System A	System B	Headset	Total
Contribution marginOperating incomeSalesSegment marginSales	$Sales	$Sales	$Sales	$Sales
Add: Variable expensesLess: Variable expensesLess: Variable expenses	Less: Variable expenses	Less: Variable expenses	Less: Variable expenses	Less: Variable expenses
Contribution marginDirect laborOperating incomeSegment marginContribution margin	$Contribution margin	$Contribution margin	$Contribution margin	$Contribution margin
Add: Direct fixed costLess: Direct fixed costLess: Direct fixed cost	Less: Direct fixed cost	Less: Direct fixed cost	Less: Direct fixed cost	Less: Direct fixed cost
Contribution marginDirect laborSalesSegment marginSegment margin	$Segment margin	$Segment margin	$Segment margin	$Segment margin
Add: Common fixed costLess: Common fixed costLess: Common fixed cost				Less: Common fixed cost
Contribution marginDirect laborOperating incomeSalesOperating income				$Operating income

2(a) Prepare segmented income statements for System A and the headsets assuming that System B is dropped. Round your answers to the nearest dollar. Input expenses as positive numbers. (Note: Be sure to complete 2(b) below the statement.)

AudioMart Segmented Income Statement System A and Headset
	System A	Headset	Total
Contribution marginOperating incomeSalesSegment marginSales	$Sales	$Sales	$Sales
Add: Variable expensesLess: Variable expensesLess: Variable expenses	Less: Variable expenses	Less: Variable expenses	Less: Variable expenses
Contribution marginDirect laborOperating incomeSegment marginContribution margin	$Contribution margin	$Contribution margin	$Contribution margin
Add: Direct fixed costLess: Direct fixed costLess: Direct fixed cost	Less: Direct fixed cost	Less: Direct fixed cost	Less: Direct fixed cost
Contribution marginDirect laborSalesSegment marginSegment margin	$Segment margin	$Segment margin	$Segment margin
Add: Common fixed costLess: Common fixed costLess: Common fixed cost			Less: Common fixed cost
Contribution marginDirect laborOperating incomeSalesOperating income			$Operating income

Suppose that a third system, System C, with a similar quality to System B, could be acquired. Assume that with C 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. 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 C	Headset	Total
Contribution marginOperating incomeSalesSegment marginSales	$Sales	$Sales	$Sales	$Sales
Add: Variable expensesLess: Variable expensesLess: Variable expenses	Less: Variable expenses	Less: Variable expenses	Less: Variable expenses	Less: Variable expenses
Contribution marginDirect laborOperating incomeSegment marginContribution margin	$Contribution margin	$Contribution margin	$Contribution margin	$Contribution margin
Add: Direct fixed costLess: Direct fixed costLess: Direct fixed cost	Less: Direct fixed cost	Less: Direct fixed cost	Less: Direct fixed cost	Less: Direct fixed cost
Contribution marginDirect laborSalesSegment marginSegment margin	$Segment margin	$Segment margin	$Segment margin	$Segment margin
Add: Common fixed costLess: Common fixed costLess: Common fixed cost				Less: Common fixed cost
Contribution marginDirect laborOperating incomeSalesOperating income				$Operating income