MSI 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 Grocery Getaway, have impressive sales. However, sales for the third CD in the collection, Post Office Polka (POP), have lagged the others. Several other CDs are planned for this collection, but none is ready for production.

MSIs information related to the ToddleTown Tours collection follows:

Segmented Income Statement for MSIs
ToddleTown Tours Product Lines
	Pet Store Parade	Grocery Getaway	Post Office Polka	Total
Sales revenue	$ 50,000	$ 45,000	$ 15,000	$ 110,000
Variable costs	23,000	19,000	10,000	52,000
Contribution margin	$ 27,000	$ 26,000	$ 5,000	$ 58,000
Less: Direct Fixed costs	4,800	3,100	3,500	11,400
Segment margin	$ 22,200	$ 22,900	$ 1,500	$ 46,600
Less: Common fixed costs*	14,400	12,960	4,320	31,680
Net operating income (loss)	$ 7,800	$ 9,940	$ (2,820)	$ 14,920

*Allocated based on total sales revenue.

MSI has determined that elimination of the Post Office Polka (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-a. Calculate the incremental effect on profit if the POP product is eliminated. Suppose $3,700 of the common fixed costs could be avoided if the POP product line were eliminated.

3-b. Should MSI drop the POP product?