E7-7 Analyzing Keep-or-Drop Decision [LO 7-2, 7-5] MSI is considering eliminating a product from its ToddleTown Tours collection. This collection is aimed at children ane to three years of age and includes "tours" of a hypothetical town. Two products, The Pet Store Parade and The Grocery Getaway, have impressive sales. However, sales for the third CD in the collection, The Post Office Polka, have lagged the others. Several other CDs are planned fr this collection, but none ready for production. MSI's information related to the ToddleTown Tours collection follows: Segmented Income Statement for MSI's ToddleTown Tours Product Lines Post Pet Store Grocery Getaway Office Parade Polka Total $11 S Variable costs 28.000 119 000 43.000 $ 63.000 S 62,000 6,700 3,000 $128,000 2,800 16,700 Contribution margin Less: Direct FIXed costs 7,200 $ 5 5500 50 300 Less: Common fixed costs 5 250 S 50050 12.300 $ (1.350) 99,000 Net operating income (loss) Allocated based on total sales dollars. MSI has determined that elimination of the Post Office Polka (POP) program would not impact sales of the other two items. The remaining fixed overhead currently allocated to the POP product would be redistributed to the remaining two products. Required: 1. Calculate the incremental effect on profit if the POP product eliminated. Effect on Profit 2. Should MSI drop the POP product? O Yes O No 3-a. Calculate the incremental effect on profit if the POP product is eliminated Suppose that $1000 of the common fixed costs could be avoided if the POP product line were eliminated Effoct on Profit 3-b. Should MSI droo the POP product? O Yes O No