Pharoah Toys management is considering eliminating product A, which has been showing a loss for several years. The companys annual income statement, is as follows:

		A		B		C		Total
Sales		$2,213,000		$1,409,000		$1,802,900		$5,424,900
Variable expenses		1,652,000		601,700		1,084,300		3,338,000
Contribution margin		$561,000		$807,300		$718,600		$2,086,900
Advertising expense		$523,000		$430,000		$520,000		$1,473,000
Depreciation expense		16,700		10,500		20,300		47,500
Corporate expenses		94,300		84,900		105,200		284,400
Total fixed expenses		$634,000		$525,400		$645,500		$1,804,900
Operating income		$(73,000)		$281,900		$73,100		$282,000

Advertising expense - Specific to each product. Depreciation expense - Specific to each product; no other use available, no resale value. Corporate expenses - Allocated based on number of employees.

(a)

Restate the income statement in segment margin format.

		A		B		C		Total
select an income statement item AdvertisingCommon fixed expensesContribution marginDepreciationDirect fixed expensesOperating profitSales RevenueSegment marginVariable expenses		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount
select an income statement item AdvertisingCommon fixed expensesContribution marginDepreciationDirect fixed expensesOperating profitSales RevenueSegment marginVariable expenses		enter a dollar amount		enter a dollar amount		enter a dollar amount		enter a dollar amount
select an income statement item AdvertisingCommon fixed expensesContribution marginDepreciationDirect fixed expensesOperating profitSales RevenueSegment marginVariable expenses		enter a total amount for the first part		enter a total amount for the first part		enter a total amount for the first part		enter a total amount for the first part
select between addition and deduction AddLess: select an income statement item AdvertisingCommon fixed expensesContribution marginDepreciationDirect fixed expensesOperating profitSales RevenueSegment marginVariable expenses
select an income statement item AdvertisingCommon fixed expensesContribution marginDepreciationDirect fixed expensesOperating profitSales RevenueSegment marginVariable expenses		enter a dollar amount		enter a dollar amount		enter a dollar amount		enter a dollar amount
select an income statement item AdvertisingCommon fixed expensesContribution marginDepreciationDirect fixed expensesOperating profitSales RevenueSegment marginVariable expenses		enter a dollar amount		enter a dollar amount		enter a dollar amount		enter a dollar amount
select an income statement item AdvertisingCommon fixed expensesContribution marginDepreciationDirect fixed expensesOperating profitSales RevenueSegment marginVariable expenses		$enter a total amount for the second part		$enter a total amount for the second part		$enter a total amount for the second part		enter a total amount for the second part
select between addition and deduction AddLess: select an income statement item AdvertisingCommon fixed expensesContribution marginDepreciationDirect fixed expensesOperating profitSales RevenueSegment marginVariable expenses								enter a dollar amount
select an income statement item AdvertisingCommon fixed expensesContribution marginDepreciationDirect fixed expensesOperating profitSales RevenueSegment marginVariable expenses								$enter a total amount for this statement

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(b)

What would be the effect on income if product A were dropped?

Net income would select an option increasedecrease by $enter a dollar amount .

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(c)

Management is considering making a new product using product As equipment. If the new products selling price per unit were $10, its variable costs were $5, and its advertising costs were the same as for product A, how many units of the new product would the company have to sell to make the switch from product A to the new product worthwhile?

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enter a number of units rounded to 0 decimal places

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