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Agnew Manufacturing produces and sells three models of a single product, Standard, Superior, and DeLuxe, in a local market and in a regional market. At the end of the first quarter of the current year, the following income statement (in thousands of dollars) has been prepared:

	Total			Local			Regional
Sales revenue	$	15,000		$	11,460		$	3,540
Cost of goods sold		12,070			9,225			2,845
Gross margin	$	2,930		$	2,235		$	695
Marketing costs		1,210			695			515
Administrative costs		594			455			139
Total marketing and administrative	$	1,804		$	1,150		$	654
Operating profits	$	1,126		$	1,085		$	41

Management has expressed special concern with the regional market because of the extremely poor return on sales. This market was entered a year ago because of excess capacity. It was originally believed that the return on sales would improve with time, but after a year, no noticeable improvement can be seen from the results as reported in the preceding quarterly statement.

In attempting to decide whether to eliminate the regional market, the following information has been gathered:

	Products
	Standard			Superior			DeLuxe
Sales revenue	$	5,800		$	4,600		$	4,600
Variable manufacturing costs as a percentage of sales revenue		60	%		70	%		60	%
Variable marketing costs as a percentage of sales revenue		3			2			2

Product Sales by Markets	Local			Regional
Standard	$	4,620		$	1,180
Superior		3,420			1,180
DeLuxe		3,420			1,180

All administrative costs and fixed manufacturing costs would not be affected by eliminating the regional market. Marketing costs that are not listed above as variable are fixed for the period and separable by market. Fixed marketing costs assigned to the regional market would be saved if that market were eliminated.

Required a. Assuming there are no alternative uses for Agnew's present capacity, would you recommend dropping the regional market? Yes O No b. Prepare the quarterly income statement showing contribution margins by products. Do not allocate fixed costs to products. (Enter your answer in thousands of dollars.) Model Standard Model SuperiorModel DeLuxe Total Sales revenue Total variable cost Contribution margin Less: Fixed costs: Total fixed costs

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