Segmented Income Statement for MSI'sToddleTown Tours Product LinesPostPet StoreGroceryGetaway$50,00021,000$29,0003,400$25,60012,800$12,800OfficePolkaParadeTotal$55,00025,000$30,0005,000$25,00014,080$10,920$20,000 $125,00061,000Sales revenue15,000$ 5,000 64,00012,400Variable costsContribution margin4,000$1,000 $ 51,6005,120Less: Direct Fixed costsSegment margin32,000$(4,120) 19,600Less: 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 wouto the remaining two products.Required:1. Calculate the incremental effect on profit if the POP product is eliminated.DecreaseEffect on Profit2. Should MSI drop the POP product?YesNo3-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.IncreaseEffect on Profit

Question
Asked Oct 22, 2019

How would i find the effect on the 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
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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

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Step 1

1. Incremental effect on profit.

Effect of POP product elimination on profit:
Loss from contribution margin
Add: Direct fixed costs saving
-5,000
4,000
Net loss if POP product eliminated
-1,000
Total profit after elimination(19,600-1,000)
Total profit before elimination
18,600
-19,600
-1,000
Decrease in profit
$ 1,000
decrease
Effect on profit
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Effect of POP product elimination on profit: Loss from contribution margin Add: Direct fixed costs saving -5,000 4,000 Net loss if POP product eliminated -1,000 Total profit after elimination(19,600-1,000) Total profit before elimination 18,600 -19,600 -1,000 Decrease in profit $ 1,000 decrease Effect on profit

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Step 2

2.

No, MSI should not drop POP product, as it would...

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