Keep or Drop AudioMart is a retailer of vintage vinyl records and equipment. The store carries two popular sound systemsSystem A and System B. System A, of slightly higher quality than System B, costs $20 more. With rare exceptions, the store also sells a specialized headset when a system is sold. The headset can be used with either system. Variable-costing income statements for the three products follow: Line Item Description System A System B Headset Sales $45,000 $32,500 $8,000 Less: Variable expenses 20,000 25,500 3,200 Contribution margin $25,000 $7,000 $4,800 Less: Fixed costs * 10,000 18,000 2,700 Operating income (loss) $15,000 $(11,000) $2,100 *This includes common fixed costs totaling $18,000, 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 30%, and sales of headsets will drop by 25%. 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 Line Item Description System A System B Headset Total $- Select - $- Select - $- Select - $- Select - - Select - - Select - - Select - - Select - $- Select - $- Select - $- Select - $- Select - - Select - - Select - - Select - - Select - $- Select - $- Select - $- Select - $- Select - - Select - $- Select - Question Content Area 2(a) Conceptual Connection: 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 Line Item Description System A Headset Total $- Select - $- Select - $- Select - - Select - - Select - - Select - $- Select - $- Select - $- Select - - Select - - Select - - Select - $- Select - $- Select - $- Select - - Select - $- Select - Question Content Area 2(b) Should system B be dropped? Question Content Area Conceptual Connection: 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 Line Item Description System A System C Headset Total $- Select - $- Select - $- Select - $- Select - - Select - - Select - - Select - - Select - $- Select - $- Select - $- Select - $- Select - - Select - - Select - - Select - - Select - $- Select - $- Select - $- Select - $- Select - - Select - $- Select - Question Content Area 3(b) Should System B be dropped and replaced with System C