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

		A		B		C		Total
Sales		$ 2,200,000		$ 1,400,000		$ 1,800,000		$ 5,400,000
Variable expenses		1,600,000		600,000		1,080,000		3,280,000
Contribution margin		$ 600,000		$ 800,000		$ 720,000		$ 2,120,000
Advertising expense		$ 500,000		$ 425,000		$ 520,000		$ 1,445,000
Depreciation expense		15,000		10,000		20,000		45,000
Corporate expenses		90,000		80,000		105,000		275,000
Total fixed expenses		$ 605,000		$ 515,000		$ 645,000		$ 1,765,000
Operating income		$( 5,000)		$ 285,000		$ 75,000		$ 355,000

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.

(a)

Restate the income statement in segment margin format.

		A		B		C		Total
select an income statement item AdvertisingCommon fixed expensesContribution marginDepreciationDirect fixed expensesOperating profitSales RevenueSegment marginVariable expenses		$ enter a dollar amount		$ enter a dollar amount		$ enter a dollar amount		$ enter a dollar amount
select an income statement item AdvertisingCommon fixed expensesContribution marginDepreciationDirect fixed expensesOperating profitSales RevenueSegment marginVariable expenses		enter a dollar amount		enter a dollar amount		enter a dollar amount		enter a dollar amount
select an income statement item AdvertisingCommon fixed expensesContribution marginDepreciationDirect fixed expensesOperating profitSales RevenueSegment marginVariable expenses		enter a total amount for the first part		enter a total amount for the first part		enter a total amount for the first part		enter a total amount for the first part
select between addition and deduction AddLess: select an income statement item AdvertisingCommon fixed expensesContribution marginDepreciationDirect fixed expensesOperating profitSales RevenueSegment marginVariable expenses
select an income statement item AdvertisingCommon fixed expensesContribution marginDepreciationDirect fixed expensesOperating profitSales RevenueSegment marginVariable expenses		enter a dollar amount		enter a dollar amount		enter a dollar amount		enter a dollar amount
select an income statement item AdvertisingCommon fixed expensesContribution marginDepreciationDirect fixed expensesOperating profitSales RevenueSegment marginVariable expenses		enter a dollar amount		enter a dollar amount		enter a dollar amount		enter a dollar amount
select an income statement item AdvertisingCommon fixed expensesContribution marginDepreciationDirect fixed expensesOperating profitSales RevenueSegment marginVariable expenses		$ enter a total amount for the second part		$ enter a total amount for the second part		$ enter a total amount for the second part		enter a total amount for the second part
select between addition and deduction AddLess: select an income statement item AdvertisingCommon fixed expensesContribution marginDepreciationDirect fixed expensesOperating profitSales RevenueSegment marginVariable expenses								enter a dollar amount
select an income statement item AdvertisingCommon fixed expensesContribution marginDepreciationDirect fixed expensesOperating profitSales RevenueSegment marginVariable expenses								$ enter a total amount for this statement

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(b)

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

Net income would select an option increasedecrease by $ enter a dollar amount .

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(c)

Management is considering making a new product using product As equipment. If the new products selling price per unit were $ 10, its variable costs were $ 4, 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?

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