8-29 Eliminating operations (LO 5)
Capital Toy's management is considering eliminating product A, which has been showing a loss for several years. The company's annual income statement, in $000s, is as follows:
	A		B		C		Total
Sales revenue	$2,200		$1,400		$1,800		$5,400
Variable expenses	1,650		600		1,080		3,330
Contribution margin	$550		$800		$720		$2,070
Advertising expense	$500		$475		$520		$1,495
Depreciation expense	$15		$10		$20		$45
Corporate expenses	$90		$80		$105		$275
Total fixed expenses	$605		$565		$645		$1,815
Operating income	($55)		$235		$75		$255
Required
a. Restate the income statement om segment margin format.
b. What would be the effect on income if product A were dropped?
c. Management is considering making a new product using product A's equipment.
If the new product's selling price per unit were $12, its variable costs were $8, and its
advertising costs were the same as for product A, how many units of the new product
would the company have to sell to make the switch from product A to the new product
worthwhile?