Blossom Toys' management is considering eliminating product A, which has been showing a loss for several years. The company's annual income statement, is as follows:

A B C Total

Sales 2,289,000 1,401,000 1,807,500 5,497,500

Variable expenses 1,696,000 600,400 1,094,200 3,390600

Contribution margin 593,000 800,600 713,300 2,106,900

Advertising expense 516,000 425,000 521,000 1,462,000

Depreciation expense 17,300 10,200 20,900 48,400

Corporate expenses 91,00 82,000 105,200 278,200

Total fixed expenses 624,300 517,200 647,100 1,788,600

Operating income (31,300) 283,400 66,200 318,300

Advertising expense - Specific to each product.

Depreciation expense - Specific to each product; no other use available, no resale value.

Corporate expenses - Allocated based on number of employees.

Restate the income statement in segment margin format.

A B C Total

What would be the effect on income if product A were dropped?

Net income would

Management is considering making a new product using product A's equipment. If the new product's selling price per unit were $10, its variable costs were $5, and its advertising costs were the same as for product A, how many units of the new product would the company have to sell to make the switch from product A to the new product worthwhile?

Units