E7-8 (Algo) 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 one 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 for this collection, but none is ready for production MSI's information related to the Toddletown Tours collection follows: Segmented Income Statement for HSI'S Toddletown Tours Product Lines Post Pet Store Grocery office Parade Getaway Polka Total sales revenue $135,000 $130,000 $36,000 5301.000 Variable costs 57.000 53,000 32,000 142,000 Contribution margin $ 78,000 5 77,000 $ 4,000 $159,000 Lens Direct Fixed costs 6,200 8,200 3,400 19,800 Segment margin $ 69,800 $ 68,800 $ 600 $139,200 Less: Common fixed costs. 6.250 6,500 1.800 15,050 Net operating income (on) $ 63,050 562.100 511200) 52124, 150 "Allocated based on total sales revenue. 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 is eliminated. 2. Should MSI drop the POP product? 3-a. Calculate the incremental effect on profit if the POP product is eliminated. Suppose that $1,200 of the common fixed costs could be avoided if the POP product line were eliminated. 3-b. Should MSI drop the POP product? Complete this question by entering your answers in the tabs below. Req 1 Reg 2 Reg 3A Req 38 Calculate the incremental effect on profit if the POP product is eliminated. Effect on Profit Regi Reg 2 > Required information Required: 1. Calculate the incremental effect on profit if the POP product is eliminated. 2. Should MSI drop the POP product? 3-a. Calculate the incremental effect on profit if the POP product is eliminated. Suppose that $1.200 of the common fixed costs could be avoided if the POP product line were eliminated. 3-b. Should MSI drop the POP product? Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3A Reg 38 Should MSI drop the POP product? Should MSI drop the POP product? Req1 Req3A > Required information Required: 1. Calculate the incremental effect on profit if the POP product is eliminated. 2. Should MSI drop the POP product? 3-a. Calculate the incremental effect on profit if the POP product is eliminated. Suppose that $1,200 of the common fixed costs could be avoided if the POP product line were eliminated 3-b. Should MSI drop the POP product? Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3A Req 38 Calculate the incremental effect on profit if the POP product is eliminated. Suppose that $1,200 of the common fixed costs could be avoided if the POP product line were eliminated Effect on Profit Required Information Required: 1. Calculate the incremental effect on profit if the POP product is eliminated. 2. Should MSI drop the POP product? 3-a. Calculate the incremental effect on profit if the POP product is eliminated. Suppose that $1.200 of the common fixed costs could be avoided if the POP product line were eliminated, 3-b. Should MSI drop the POP product? Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3A Req 3B Should MSI drop the POP product? Should MSI drop the POP product?
