MSI is consideigelminating a product from its ToddleTowm Tours collection. This

Question

MSI is consideigelminating a product from its ToddleTowm Tours collection. This collection is aimed at chikdren one to three years of age and includes lours" of a hypolheticawn. Two products, The Pet Store Parade and The Grocery Getaway, have impressive sales However, sales for the third C.D in the collection The Past Office Polka, have lagged the others Several other CDs are planned for this collection, but none is ready for prodiction MSI's information related to the Toddle Town Tours colleclion fellows Gegmented Income Statement for MSI's Toddle TONTI Tours Product Lines Pet Store Grocery Offi Sales revenue Variable costs 590,000 $85 000 39,000 35.C00 Contribution margin Sogment margn Net operating income css) 000 96,000 0 S500O 5,000 106.000 4,500 16.400 500 S9 600 Less: Direct Fixed costs 600 500 900 3 60027030200 Less: Common fixed costs Allocated based on total sales dollars MSI has determined that elimination of the Post Otfice Polka (POP) program would not impact sales of the other two items. The remaining fixed overhead currently allccated to the POP product would be redistributed to the remaining two products Required: 1. Calculate the incremental cfcct on protit it the POP product is eliminateo t on Profit 2. Should MSI drop the POP praduct? O Yes No 3-a. Calculate the incremental etect on protit if the POP product is eliminated. Suppose that $2 000 ot the common fixed costs could be avcided it the POP product line were elimineted. on Profit

Explanation / Answer

1 Change In profit=-5000+4500 = $-500 Profit decreases by $500 2 No 3 Change In profit=-5000+4500+2000 = $1500 Profit increases by $1500

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