1. The following monthly segmented income statement is for Condiment Company, which has three separate product lines (A, B, and C).

	A	B	C	Total
Sales revenue	$37,500	$50,000	$12,500	$100,000
Variable costs	$16,000	$27,500	$5,000	$48,500
Contribution margin	$21,500	$22,500	$7,500	$51,500
Direct fixed costs	$19,500	$16,000	$3,500	$39,000
Allocated fixed costs	$3,750	$5,000	$1,250	$10,000
Profit (loss)	$(1,750)	$1,500	$2,750	$2,500

Management is concerned about the losses associated with product line A and is considering dropping this product line. Allocated fixed costs are assigned to product lines based on sales. If product line A is eliminated, total allocated fixed costs are assigned to the remaining product lines, and all variable and direct fixed costs for product line A will be eliminated.

1. Perform differential analysis of these two alternatives (keep product line A or drop it).

2. Which alternative is best? Explain.
3. Explain why the loss shown for product line A in the segmented income statement might be misleading to management.