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, assuming Mohave Corp. drops the Azul line. 1-b. Will Mohave's net operating income increase or decrease if the Azul model is eliminated? By how much? 2. Should Mohave drop the Azul model? 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. 3-b. Should Mohave drop the Azul model? 3-c. What is the increase or decrease in the net operating income of Mohave? Complete this question by entering your answers in the tabs below. Req 1A Req 18 Req 2 Req 3A Req 38 Req 3C os Complete the table given below, assuming Mohave Corp. drops the Azul line. (Do not round intermediate calculations. Round Common Fixed Costs to the nearest whole dollar.) Sales Revenue Variable Costs Contribution Margin Direct Fixed Costs Segment Margin Common Fixed Costs Net Operating Income (Loss) Indigo Verde Total Reg 1A Req 18 > < Prev 3 of 5 Next > PA7-3 (Static) Analyzing Keep-or-Drop Decision [LO 7-2, 7-5] 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 2,500 Sales revenue Indigo $60,000 Verde $60,000 Variable costs. 34,000 31,000 Contribution margin $26,000 $29,000 Less: Direct fixed costs 1,900 Segment margin $24,100 $26,500 Common fixed costs Net operating income (loss) 17,840 $6,260 17,840 $8,660 "Allocated based on total sales revenue nces Azul $30,000 26,000 $ 4,000 2,000 $ 2,000 8,920 Total $150,000 91,000 $ 59,000 6,400 $ 52,600 44,600 $(6,920) $8,000 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, assuming Mohave Corp. drops the Azul line. 1-b. Will Mohave's net operating income increase or decrease if the Azul model is eliminated? By how much? 2. Should Mohave drop the Azul model? 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. 3-b. Should Mohave drop the Azul model? 3-c. What is the increase or decrease in the net operating income of Mohave? Mohave has determined that eliminating the Azul model would cause sales of the Indigo and Verde and 15 percent, respectively. Variable costs for these two models would increase proportionately. Alt be eliminated, the common fixed costs are unavoidable. The common fixed costs would be redistribu products. Required: 1-a. Complete the table given below, assuming Mohave Corp. drops the Azul line. 1-b. Will Mohave's net operating income increase or decrease if the Azul model is eliminated? By how 2. Should Mohave drop the Azul model? 3-a. Complete the table given below assuming that Mohave had no direct fixed overhead in its produ $51,000 of fixed cost was common fixed cost. 3-b. Should Mohave drop the Azul model? 3-c. What is the increase or decrease in the net operating income of Mohave? Complete this question by entering your answers in the tabs below. Req 1A Req 1B Req 2 Req 3A Req 3B Req 3C Complete the table given below assuming that Mohave had no direct fixed overhead in its production infor entire $51,000 of fixed cost was common fixed cost. 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 Change in Contribution Margin < Req 2 Req 3B > < Prev 3 of 5 Next >