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 The Grocery Getaway, have impressive sales. However, sales for the third CD in the collection, The Post Office Polka, 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

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

1. Calculate the incremental effect on profit if the POP product is eliminated

effect on profit

2. 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

Segmented Income Statement for MSI's Toddle Town Tours Product Lines Sales revenue Variable costs Contribution margin Less: Direct Fixed costs Segment margin Less: Common fixed costs* Net operating income (loss) Pet Store Parade $150,000 63,000 $ 87,000 8,800 $ 78,200 7,500 $ 70,700 Grocery Getaway $145,000 59,000 $ 86,000 9,100 $ 76,900 Post Office Polka Total $39,000 $334,000 35,000 157,000 $ 4,000 $177,000 3,700 21,600 $ 300 $155,400 1,950 16,700 $ (1,650) $138,700 7,250 $ 69,650