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:

Segmented Income Statement for MSI's Toddle Town Tours Product Lines Post Office Polka Pet Store Grocery Parade Getaway Total 120,000115,000 s 33,000 $ 268,000 Sales revenue $ Variable costs 51,000 47,000 29,000 127,000 $69,000 $ 68,000 $ 4,000 $ 141,000 Contribution margin Less: Direct Fixed costs 7,300 3,100 18,000 7,600 900 $123,000 1,650 Segment margin Less: Common fixed costs 61,400 $60,700 $ 5,750 13,400 6,000 55,400 $ 54,950 $ (750) $ 109,600 Net operating income (loss) Allocated based on total sales dollars. 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: Calculate the incremental effect on profit if the POP product is eliminated. 1 Effect on Profit Should MSI drop the POP product? 2. Yes No 3-a. 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 3-b. Should MSI drop the POP product? Yes No