FunTime Company produces three lines of greeting cards: scented, musical, and regular. Segmented income statements for the past year are as follows: Scented Musical Regular Total
Sales $10,000 $15,000 $25,000 $50,000
Less: Variable expenses 7,000 12,000 12,500 31,500
Contribution margin $3,000 $3,000 $12,500 $18,500
Less: Direct fixed expenses 4,000 5,000 3,000 12,000
Segment margin $(1,000) $(2,000) $9,500 $6,500
Less: Common fixed expenses 7,500
Operating income (loss) $(1,000)

Kathy Bunker, president of FunTime, is concerned about the financial performance of her firm and is seriously considering dropping both the scented and musical product lines. However, before making a final decision, she consults Jim Dorn, FunTime’s vice president of marketing. Jim warns Kathy that eliminating the scented and musical lines would lower the sales of the regular line by 20%.

Required:
Prepare an income statement for Fun Time assuming the Scented and Musical greeting card lines are dropped.