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Mohave Corp. is considering eliminating a product from its Sand Trap line of beach umbrelas. This col lection is aimed at people who spend time
Mohave Corp. is considering eliminating a product from its Sand Trap line of beach umbrelas. This col lection 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 Beach la Products 00 $80,000 $30,000 $150,000 4,000 S 59,000 $24, 100 S26.500 $2,000 52,600 Sales rovenuo Var able cists Contribution margin Less: Direct Fixed costs 1,900 2,500 2,00 Segment margin Common fixed costs 138010 820 40000 Net operating income (loss) Alocated 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. 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 Sales Revenue Variable Costs Contribution Margin Direct Fixed Costs Segment Margin Common Fixed Costs Net operaling income oss) 1-b. Will Mohave's net operating income increase or decrease if the Azul model is eliminated? By how much? in Net O
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