Barbour Corporation, located in Buffalo, New York, is a retailer of high-tech products and is known forits excellent quality and innovation. Recently, the firm conducted a relevant cost analysis of one of itsproduct lines that has only two products, T-1 and T-2. The sales for T-2 are decreasing and thepurchase 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 ofBarbour saw the income statements (see below), he agreed that T-2 should be dropped. If T-2 isdropped, sales of T-1 are expected to increase by 10% next year, but the firm's cost structure willremain the same.

T1 T2

Sales $225,000 280,000

Variable costs:

Cost of goods sold 75,000 140000

Selling & administrative 37500 55000

Contribution margin 112500 85000

Fixed expenses:

Fixed corporate costs 65,000 80,000

Fixed selling and admin 17,000 26,000

Total fixed expenses $82,000 $106,000

Operating income 30,500$ (21,000)

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 lossfrom dropping T-2?

(Enter your answer as a percentage rounded to 2 decimal places (i.e. 0.1234should 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 $47,000?

(Enter your answer as a percentage rounded to 2decimal places (i.e. 0.1234 should be entered as 12.34).)