Barbour Corporation, located in Buffalo, New York, is a retailer of hightech products and is known for its excellent quality and innovation. Recently the firm conducted a relevant cost analysis of one of its product lines that has only two products, T-1 and T-2. The sales for T-2 are decreasing and the purchase costs are increasing. The firm might drop T-2 and sell only T-1.

Barbour allocates fixed costs to products on the basis of sales revenue. When the president of Barbour saw the income statement, he agreed that T-2 should be dropped. If this is done, sales of T-1 are expected to increase by 10% next year; the firms cost structure will remain the same.

	T-1		T-2
Sales	$	200,000	$	260,000
Variable cost of goods sold		70,000		130,000
Manufacturing contribution margin	$	130,000	$	130,000
Other expenses:
Fixed corporate costs		60,000		75,000
Variable selling and administration		20,000		50,000
Fixed selling and administration		12,000		21,000
Total other expenses	$	92,000	$	146,000
Operating income	$	38,000	$	(16,000)

Required:

1.	Find the expected change in annual operating income by dropping T-2 and selling only T-1.

2.	By what percentage would sales from T-1 have to increase in order to make up the financial loss from dropping T-2? (Enter your answer as a percentage rounded to 2 decimal places (i.e. 0.1234 should be entered as 12.34).)

3.	What is the required percentage increase in sales from T-1 to compensate for lost margin from T-2, if total fixed costs can be reduced by $45,000? (Enter your answer as a percentage rounded to 2 decimal places (i.e. 0.1234 should be entered as 12.34).)