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:

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

2. Should MSI drop the POP product?

	Yes
	No

3-a. Calculate the incremental effect on profit if the POP product is eliminated. Suppose that $2,000 of the common fixed costs could be avoided if the POP product line were eliminated. 3-b. Should MSI drop the POP product?

	Yes
	No

Segmented Income Statement for MSI's Toddle Town Tours Product Lines Post Pet Store Grocery Office Parade Getaway Polka Total Sales revenue Variable costs $95,000 $90,000 $28,000 $213,000 41,000 37,000 23,000 101,000 $54,000 $53,000 5,000 $112,000 Contribution margin Segment margin Net operating income (loss) 000 5,800 9,000 Less: Direct Fixed costs 6,600 4,600 17,000 $47,400 $47,200 $ 400 $ 95,000 Less: Common fixed costs 9,500 2,800 21,300 $37,900 $38,200 (2.400 73.700