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	$	290,000	$	332,000
Variable cost of goods sold		88,000		166,000
Contribution margin	$	202,000	$	166,000
Expenses:
Fixed corporate costs		78,000		93,000
Variable selling and administration		13,500		68,000
Fixed selling and administration		30,000		39,000
Total expenses	$	121,500	$	200,000
Operating income	$	80,500	$	(34,000)