Mohave Corp. is considering eliminating a product from its Sand Trap line of beach umbrellas. This collection is aimed at people who spend time on the beach or have an outdoor patio near the beach. Two products, the Indigo and Verde umbrellas, have impressive sales. However, sales for the Azul model have been dismal. Mohaves information related to the Sand Trap line is shown below. Mohave has determined that eliminating the Azul model would cause sales of the Indigo and Verde models to increase by 10 percent and 15 percent, respectively. Variable costs for these two models would increase proportionately. Although the direct fixed costs could be eliminated, the common fixed costs are unavoidable. The common fixed costs would be redistributed to the remaining two products.

Segmented Income Statement for Mohave's Sand Trap Beach Umbrella Products Verde 34,000 31,000 26,000 2,500 17,840 Indigo Total 91,000 6,400 44,600 Azul $60,000 $60,000 $30,000 $150,000 $26,000 $29,000 4,000 $ 59,000 $24,100 $26,500 2,000 $ 52,600 $ 6,260 $ 8,660 $(6,920) $ 8,000 Sales revenue Variable costs Contribution margin Segment margin Net operating income (loss) Less: Direct Fixed costs 1,900 2,000 Common fixed costs* 17,840 8,920 Required: 1-a. Complete the table given below, if Mohave Corp drops the Azul line. (Do not round intermediate calculations. Round Common Fixed Costs to the nearest whole dollar.) Indigo Verde Total Sales Revenue Variable Costs Contribution Margin Direct Fixed Costs Segment Margin Common Fixed Costs Net operaling ncome (loss) 1-b. Will Mohave's net operating income increase or decrease if the Azul model is eliminated? By how much? Change in Net Operating Income (Loss) by 2. Should Mohave drop the Azul model? No Yes 3-a. Complete the table given below assuming that Mohave had no direct fixed overhead in its production information and the entire $51,000 of fixed cost was common fixed cost. Change in Contribution Margin Contribution Margin Gained on Indigo Contribution Margin Gained on Verde Contribution Margin Lost on Azul Net Increase in Contribution Margin Change in Fixed Costs Net Change in Profit if Azul is Eliminated 3-b. Should it the drop Azul model? Yes No 3-c. What is the increase or decrease in the net operating income of Mohave? Change in Net Operating Income (Loss) by