Exercise 11-27 Product-Line Profitability Analysis [LO 11-5] Barbour Corporation, located in Buffalo, 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 T-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 T-1 are expected to increase by 10% next year, but the firm's cost structure will remain the same. Sales Variable costs: Cost of goods sold Selling & administrative Contribution margin $121,000 Fixed expenses: Fixed corporate costs 64,000 Fixed selling and administrative 16,000 T-1 $220,000 74,000 25,000 T-2 $276,000 138,000 54,000 $ 84,000 79,000 25,000 Total fixed expenses $ 80,000 Operating income $ 41,000 $104,000 $(20,000) 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 (i.e. 0.1234 should be entered as 12.34).) 3. What is the required percentage increase in sales from T-1 to compensate for lost margin from T-2, if total fixed costs can be reduced by $45,500? (Enter your answer as a percentage rounded to 2 decimal places (i.e. 0.1234 should be entered as 12.34).) 1. Net loss on discontinuing T-2 2. Required % increase in sales of T-1 % 3. Required % increase in sales from T-1 %