Barbour Corporation, located in Buffalo, New York, is a retailer of high-tech 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 statements (see below), he agreed that T-2 should be dropped. If T-2 is dropped, sales of T-1 are expected to increase by 10% next year, but the firm's cost structure will remain the same.

T - 1 T - 2 SALES $ 265, BBB $ 312, BBB Variable Costs . Cost Of goods =010 83, BOB 156, BBB S Elling & administrative 23, 860 53, BOB Contribution margin $159, BBB $ 93, BBB FIXED EXPENSES ! Fixed corporatE Costs 73, BOB BB, BBB Fixed Selling and administrative 25, 680 34, BBB Total Fixed EXPENSES 98 , 680 $ 122 , 680 Operating Income* $ 61, BOB $ ( 29 , 680 )