When Ms. Lolly Pop, president and chief executive of Pop, Inc., first saw the segmented income statement below, she flew into his usual rage: "When will we ever start showing a real profit? I'm starting immediate steps to eliminate those two (C and K) unprofitable lines!" Product Lines - Actual Results Total A C K Sales 250,000 100,000 75,000 75,000 Cost of goods sold 198,000 62,500 58,300 77,200 Gross Margin 52,000 37,500 16,700 (2,200) Selling and Administrative 51,900 23,500 24,200 4.200 Expenses Operating Income 100 14,000 (7,500) (6,400) There are no beginning or ending inventories. 60% of the cost of goods sold expense is variable. The remaining costs are fixed. Indirect (common) fixed costs are included as part of selling and administrative expenses as follows: Activ Go to There are no beginning or ending inventories. 60% of the cost of goods sold expense is variable. The remaining costs are fixed. Indirect (common) fixed costs are included as part of selling and administrative expenses as follows: . A $20,000 C $10,500 . K $4,000 Traceable (direct) fixed expenses could be eliminated if the product lines to which they are traced were discontinued. All three product lines are complementary. Often sales staff will "throw in" product C or K to sell product A. Required: (round to the nearest whole number) a. Prepare a revised income statement for each product line using the contribution margin income statement format. Recommend which segments, if any, should be eliminated based on financial performance. (10 marks) b. Discuss the potential implications of discontinuing any of the product lines from a strategic point of view