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Barbour Corporation, located in Butfalo, New York, is a retailer of high-tech products and is known for its excellent quality and Innovation. Recently, the firm
Barbour Corporation, located in Butfalo, 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 1-2. 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 T1 are expected to increase by 10 percent next year, but the firm's cost structure will remain the same. T-1 Sales 1-2 $ 200,000 Variable costs: $ 260,000 Cost of goods sold 70,000 130,000 Selling & administrative 20,000 50.000 Contribution margin $ 110,000 $ 30,000 Fixed expenses Fixed corporate costs 58,700 76,300 Fixed selling and administrative 14,30 18.700 Total fixed expenses 3.73,000 $95.000 Operating income $ 37,000 $ 15,000) 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 (.e. 0.1234 should be entered as 12.34).) 3. What is the required percentage increase in sales from T1 to compensate for lost margin from 1-2, if total fixed costs can be reduced by $45,000? (Enter your answer os o percentage rounded to 2 decimal places (i.e. 0.1234 should be entered os 12.34).) 1 2 Required increase in sales from T.1 3. Required increase in sales from T1 96 96
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