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.

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. MSI's information related to the Toddle Town Tours collection follows: Segmented Income Statement for MSI's ToddleTown Tours Product Lines Pet Store Grocery Parade Getaway Post Office _Polka Total $140,000 $135,000 $37,000 $312,000 55,000 33,000 147,000 $81,000 $ 80,000 $ 4,000 $165,000 3,500 20,400 $72,600 71,500 500 $144,600 Sales revenue Variable costs Contribution margin Segment margin Net operating income (loss) 59,000 8,400 7,000 Less: Direct Fixed costs 8,500 Less: Common fixed costs 6,750 S 65,600 S 64.750 S(1350) $129,000 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 Effect on Profit 2. Should MSI drop the POP product? Yes 0 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