Morning Sky, Inc. (MSIj, manufactures and sells computer games. The company hes several product lines based on the age range of the target market IMS sells both individual games as well as packaged sets. All games are In CD formet, and come utilize accessories such as steering wheels, electronic tablets, and hand controls. To date, MS has developed and manufactured all the CDs tteelf as well as the accessories and packaging for all of its products. The gaming market has traditionally been targeted at teenagers and young adults; however, the Increasing affordability of computers and the incorporation of computer activities Into junior high and elementary school curriculums hes led to a significant Increase in sales to younger children. MSI has always included games for younger children but now wants to expand Its business to capitalize on changes in the industry. The company currently hes excess capacity and Is Investigating severe possible ways to Improve profitability. Mal Is considering eliminating a product from its ToddleTown Tours collection. This collection is aimed at children one to three years of age and Includes "tours" of a hypothetical town. Two products, The Pet Store Parade and The Grocery Getaway, have Impressive solee. However sales for the third CD In the collection, The Post Office Polke, have legged the others. Several other CDs are planned for this collection, but none is ready for production. MSI's Information related to the ToddleTown Tours collection follows: Segmented Income Statement for MEI's ToddleTown Tours Product Lines Post Pet Store Grocery Office Parade Polka Total $135,809 $1307808 $367808 $3817809 Variable costs 537808 32,1809 142 808 Contribution margin Less: Direct Fixed costs 6, 208 19, 809 Saymant margin Less: Common fixed costs* 6,758 6,908 157858 Net operating income (loss] `Allocated based on total sales revenue. MSI has determined that elimination of the Post Office Polks (POP) program would not Impact sales of the other two Items. The remaining fixed overhead currently allocated to the POP product would be redistributed to the remaining two products Required: 1. Calculate the Incremental effect on profit if the POP product Is eliminated. 2. Should MSI drop the POP product: 3-0. Calculate the Incremental effect on profit if the POP product is eliminated. Suppose that $1200 of the common fixed costs could be avoided if the POP product line were eliminated. 3-b. Should MSI drop the POP product:Req 1 Req 2 Req 3A Req 3B Calculate the incremental effect on profit if the POP product is eliminated. Effect on Profit Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3A Req 3B Should MSI drop the POP product? Should MSI drop the POP product? Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3A Req 3B Calculate the incremental effect on profit if the POP product is eliminated. Suppose that $1,200 of the common fixed costs could be avoided if the POP product line were eliminated. Effect on Profit Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3A Reg 3B Should MSI drop the POP product? Should MSI drop the POP product?
