AudioMart is a retailer of radios, stereos, and televisions. Thestore carries two portable sound systems that have radios, tapeplayers, and speakers. System A, of slightly higher quality thanSystem B, costs $19 more. With rare exceptions, the store alsosells a headset when a system is sold. The headset can be used witheither system. Variable-costing income statements for the threeproducts follow:

	System A	System B	Headset
Sales	$ 45,500	$ 32,600	$ 7,900
Less: Variable expenses	20,400	25,600	3,400
Contribution margin	$25,100	$7,000	$4,500
Less: Fixed costs *	9,800	17,900	2,700
Operating income (loss)	$15,300	$(10,900)	$1,800

* This includes common fixed costs totaling $17,900, allocatedto each product in proportion to its revenues.

The owner of the store is concerned about the profit performanceof System B and is considering dropping it. If the product isdropped, sales of System A will increase by 31%, and sales ofheadsets will drop by 26%. Round all answers to the nearest wholenumber.

	Required:
1.	Prepare segmented income statements for the three productsusing a better format.
2.	CONCEPTUAL CONNECTION: Prepare segmented income statements forSystem A and the headsets assuming that System B is dropped. ShouldB be dropped?
3.	CONCEPTUAL CONNECTION: Suppose that a third system, System C,with a similar quality to System B, could be acquired. Assume thatwith C the sales of A would remain unchanged; however, C wouldproduce only 80% of the revenues of B, and sales of the headsetswould drop by 10%. The contribution margin ratio of C is 50%, andits direct fixed costs would be identical to those of B. ShouldSystem B be dropped and replaced with System C?