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

Question

MSI is considering eliminating a product from its Toddle Town Tours collection This collection is Parade and The Grocery Getaway, have impressive sales. However, sales for the third CD in the none is ready for production. T aimed at children one to three years of age and indludes Tours" of a hypothetical town. Two products, The Pet Store coleton, The Post Ofoe Polka, have laggedofers Severu ner CDs aro parned fy his collection bu MSI's information related to the Toddle Town Tours collection follows Segmented Income Staloment for MS's Todde e Town Tours Product L Pet Store Grocery Office $95,000 $90,000 $28,000 $2 Sales revenue Variable costs 41,000 37,000 23,000 101,000 000-163.000-15000. Contribution margin Segment margin Net operating noome os Less: Direct Fixed costs G00 5,8004 000 2,800 21 300 Less Common Exed costs Allocated based on total sales dollars MSI has delermined that eimnaton of the Post Offioe Poka (POP) program wouls not impact sales of the other two tems. The remaining feed overhead cumenty alocated to the POP product woudld be redisributed to the remaining two products Required 1. Caloulate the incremenmal effeat on peoft if the Pop product is minaed

Explanation / Answer

Solution 1:

Effect on profit if POP product is eliminated = $400 decrease in profit.

Solution 2:

As profit will decrease by $400, hence MSI should not drop POP Product.

Solution 3:

Effect on profit if POP product is eliminated = $1,600 Increase in profit.

As profit will Increase by $1,600, hence MSI should drop POP Product.

Incremental Analysis - Continue POP Product (Alt 1) or Eliminate (Alt 2) POP Product Particulars Net Income Increase (Decrease) - Alt 2 Amount Amount Sales $213,000.00 $185,000.00 -$28,000.00 Variable Cost $101,000.00 $78,000.00 -$23,000.00 Contribution $112,000.00 $107,000.00 -$5,000.00 Direct Fixed Cost $17,000.00 $12,400.00 -$4,600.00 Common Fixed Cost $21,300.00 $21,300.00 $0.00 Net Income $73,700.00 $73,300.00 -$400.00

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