Mohave Corp. is considering eliminating a product from its Sand Trap line of bea

Question

Mohave Corp. is considering eliminating a product from its Sand Trap line of beach umbrellas. This collection is aimed at people who spend time on the beach or have an outdoor patio near the beach. Two products, the Indigo and Verde umbrellas, have impressive sales. However, sales for the Azul model have been dismal. Mohave's information related to the Sand Trap line is shown below. Segmented Income Statement for Mohave's Sand Trap Beach Umbrella Product:s Indigo Verde Azul Total $60,000 $60,000 $30,000 $150,000 34,000 31,000 26,000 91,000 $26,000 $29,000 $4,000 59,000 6.400 $24,100 $26,500 2,000 52,600 8.920 44,600 6,260 8,660 (6,920) $ 8,000 Sales revenue Variable costs Contribution margin Less: Direct Fixed costs 1,900 2,500 2,000 Segment margin Common fixed costs 17,840 17,840 Net operating income (loss) Allocated based on total sales revenue Mohave has determined that eliminating the Azul model would cause sales of the Indigo and Verde models to increase by 10 percent and 15 percent, respectively. Variable costs for these two models would increase proportionately. Although the direct fixed costs could be eliminated, the common fixed costs are unavoidable. Th common fixed costs would be redistributed to the remaining two products Required: 1-a. Complete the table given below, if Mohave Corp drops the Azul line. (Do not round intermediate calculations. Round Common Fixed Costs to the nearest whole dollar.) Indigo Verde Total Sales Revenue Variable Costs Contribution Margin Direct Fixed Costs Segment Margin Common Fixed Costs Net operating income 1,900 2,500 4,400 loss

Explanation / Answer

Req 1-a Segmented contribution margin income Statement Indigo Verde Total Sales revenue 66000 69000 135000 Variable cost 37400 35650 73050 Contribution margin 28600 33350 61950 Direct fixed cost 1900 2500 4400 Segment margin 26700 30850 57550 Common Fixed cost 21804 22796 44600 Net operating income 4896 8054 12950 Net Increase in income (12950-8000): 4950 Req 2: Yes, Azul model shall be dropped Req 3 Change in Contribution Contribution gain in Indigo (28600-26000) 2600 Contribution gain in verde (33350-29000) 4350 Contnribution lost in Azul -4000 Net increse in contribution margin 2950 Change in fixed cost 0 Net change in Net operating income 2950 Yes, Azul shall be dropped

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

---

---

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