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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
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's Sand Trap Beach Umbrella Products Total ndigo Verde Azul 60,000 60,000 30,000 150,000 Sales revenue 34,000 31,000 Variable costs 26,000 91,000 26,000 29,000 4,000 59,000 Contribution margin Less: Direct Fixed costs 1,900 2,500 2,000 6,400 24,100 26,500 2,000 52,600 Segment margin 17,840 Common fixed costs 17,840 8,920 44,600 Net operating income (loss) 6,260 8,660 (6,920) 8,000 "Allocated based on total sales dollars. 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
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