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.

Mohave's information related to the Sand Trap line is shown below.

Segmented Income Statement for Mohave'sSand Trap Beach Umbrella Products

Indigo Verde Azul Total

Sales revenue $60,000$60,000$30,000$150,000

Variable costs34,00031,00026,00091,000

Contribution margin$26,000$29,000$4,000$59,000

Less: Direct Fixed costs1,9002,5002,0006,400

Segment margin$24,100$26,500$2,000$52,600

Common fixed costs*17,84017,8408,92044,600

Net operating income (loss)$6,260$8,660$(6,920)$8,000

Allocated based on total sales revenue

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.

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.)

Sales Revenue

Variable Cost

Contributed Margin

Direct Fixed Cost

Segment Magin

Common Fixed Cost

Net Operating Income

(loss)

1-b.Will Mohave's net operating income increase or decrease if the Azul model is eliminated? By how much?

Change in net income by ________

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.

Contributed margin gained on Indigo

Contributed margin gained on Varde

Contributed margin gained on Azul

Net Increase in contributed margin

Change in fixed cost

Net change in profet of Azul is Eliminated