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-1T-2Sales$230,000$284,000Variable costs:Cost of goods sold76,000142,000Selling & administrative27,50056,000Contribution margin$126,500$86,000Fixed expenses:Fixed corporate costs66,00081,000Fixed selling and administrative18,00027,000Total fixed expenses$84,000$108,000Operating income$42,500$(22,000)

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 $48,500?(Enter your answer as a percentage rounded to 2 decimal places (i.e. 0.1234 should be entered as 12.34).)