Sandhill Toys' management is considering eliminating product A, which has been showing a loss for several years. The company's annual income statement, is as follows: Sales Variable expenses Contribution margin Advertising expense Depreciation expense Corporate expenses Total fixed expenses Operating income A $2,228,000 1,665,000 $563,000 $517,000 16,400 92,000 $625,400 $(62,400) B $1,407,000 600,100 $806,900 $429,000 10,300 83,800 $523,100 $283,800 $1,819,000 1,081,500 $737,500 $520,000 20,300 105,900 $646,200 $91,300 Total $5,454,000 3,346,600 $2,107,400 $1,466,000 47,000 281,700 $1,794,700 $312,700 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. Restate the income statement in segment margin format. A B v Sales Revenue $ 2228000 $ 1407000 $ Variable expenses 1665000 i i 600100 i Contribution margin 563000 806900 Less Direct fixed expenses Advertising 517000 i 429000 PO Depreciation 16400 IN 10300 i Segment margin $ 29600 $ $ 367600 $ $ Less Common fixed expenses Operating profit Restate the income statement in segment margin format. A B Total 2228000 1407000 $ 1819000 $ 5454000 1665000 i 600100 i 1081500 i 3346600 i 563000 806900 737500 2107400 517000 i 429000 i 520000 i 1466000 i 16400 i 10300 i 20300 i 47000 i 29600 $ 367600 A 197200 594400 281700 i $ 312700 (b) Your answer is correct. What would be the effect on income if product A were dropped? Net income would decrease by $ 46000 i (c) * Your answer is incorrect. Management is considering making a new product using product A's equipment. If the new product's 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? Units 2