MSI is considering eliminating a product from its Toddle Town Tours collection.

Question

MSI is considering eliminating a product from its Toddle Town Tours collection. This collection is aimed at children one to three years of age and includes "tours" ofa hypothetical town. Two products, The Pet Store Parade and The Grocery Getaway,have impressive sales. However, sales for the third CD in the collection, The Post Office Polka, have lagged the others. Several other CDs are planned for this collection, but none is ready for production. MSI's information related to the Toddle Town Tours collection follows Segmented Income Statement for MSI's Toddle Town Tours Product Lines Post Pet Store Grocery Office Parade Getaway Polka Total Sales revenue Variable costs $50,000 $45,000 $15,000 $110,000 23,000 9,000 10,000 52,000 $27,000 $26,000 $ 5,000 $ 58,000 Contribution margin Less: Direct Fixed costs 4,800 3,100 3,500 11.400 Segment margin $22,200 $22,900 $1,500 $ 46,600 Less: Common fixed costs 14,400 12,960 9940-2320 4,320 31680 4.32 Net operating income (loss) Allocated based on total sales revenue MSI has determined that elimination of the Post Office Polka (POP) program would not impact sales of the other two items. The remaining fixed overhead currently allocated to the POP product would be redistributed to the remaining two products Required 1. Calculate the incremental effect on profit if the POP product is eliminated Effect on Profit 2. Should MSI drop the POP product? O Yes 3-a. Calculate the incremental effect on profit if the POP product is eliminated. Suppose that $3,700 of the common fixed costs could be avoided if the POP product line were eliminated Effect on Profit 3-b. Should MSI drop the POP product? O Yes O No

Explanation / Answer

Rreq 1: Incremental Analysis Continue Drop of POP Effect on income Sales revenue 110000 95000 -15000 Less: Variable cost 52000 42000 10000 Contributiion margin 58000 53000 -5000 Less: Direct Fixed cost 11400 7900 3500 Segment margin 46600 45100 -1500 Less: Common Fixed cost 31680 31680 0 Net income 14920 13420 -1500 Effect on profit decrease by $1500. Hence. NO, MSI should not Drop POP. Req 3: Incremental Analysis Continue Drop of POP Effect on income Sales revenue 110000 95000 -15000 Less: Variable cost 52000 42000 10000 Contributiion margin 58000 53000 -5000 Less: Direct Fixed cost 11400 7900 3500 Segment margin 46600 45100 -1500 Less: Common Fixed cost 31680 27980 3700 Net income 14920 17120 2200 Effect on Profit Increase by $2200 Hence. Yes, MSI should drop POP.

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.