Segmented Income Statement for MSI's ToddleTown Tours Product Lines Post Pet Store Grocery Getaway $50,000 21,000 $29,000 3,400 $25,600 12,800 $12,800 Office Polka Parade Total $55,000 25,000 $30,000 5,000 $25,000 14,080 $10,920 $20,000 $125,000 61,000 Sales revenue 15,000 $ 5,000 64,000 12,400 Variable costs Contribution margin 4,000 $1,000 $ 51,600 5,120 Less: Direct Fixed costs Segment margin 32,000 $(4,120) 19,600 Less: Common fixed costs* 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 wou to the remaining two products. Required: 1. Calculate the incremental effect on profit if the POP product is eliminated. Decrease Effect on Profit 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 $4,000 of the common fixed costs could be avoided if the POP product line were eliminated. Increase Effect on Profit

Segmented Income Statement for MSI's ToddleTown Tours Product Lines Post Pet Store Grocery Getaway $50,000 21,000 $29,000 3,400 $25,600 12,800 $12,800 Office Polka Parade Total $55,000 25,000 $30,000 5,000 $25,000 14,080 $10,920 $20,000 $125,000 61,000 Sales revenue 15,000 $ 5,000 64,000 12,400 Variable costs Contribution margin 4,000 $1,000 $ 51,600 5,120 Less: Direct Fixed costs Segment margin 32,000 $(4,120) 19,600 Less: Common fixed costs* 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 wou to the remaining two products. Required: 1. Calculate the incremental effect on profit if the POP product is eliminated. Decrease Effect on Profit 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 $4,000 of the common fixed costs could be avoided if the POP product line were eliminated. Increase Effect on Profit

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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