Required information
"Morning Sky, Inc. (MSI), manufactures and sells computer games.
The company has several product lines based on the age range of the
target market. MSI sells both individual games as well as packaged
sets. All games are in CD format, and some utilize accessories such
as steering wheels, electronic tablets, and hand controls. To date,
MSI has developed and manufactured all the CDs itself as well as
the accessories and packaging for all of its
products.
The gaming market has traditionally been targeted at teenagers and young adults; however, the increasing affordability of computers and the incorporation of computer activities into junior high and elementary school curriculums has led to a significant increase in sales to younger children. MSI has always included games for younger children but now wants to expand its business to capitalize on changes in the industry. The company currently has excess capacity and is investigating several possible ways to improve profitability."
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 ToddleTown Tours collection
follows:
Segmented Income Statement for MSI’s | ||||||||||||||||||
ToddleTown Tours Product Lines | ||||||||||||||||||
Pet Store Parade | Grocery Getaway | Post Office Polka | Total | |||||||||||||||
Sales revenue | $ | 150,000 | $ | 145,000 | $ | 39,000 | $ | 334,000 | ||||||||||
Variable costs | 63,000 | 59,000 | 35,000 | 157,000 | ||||||||||||||
Contribution margin | $ | 87,000 | $ | 86,000 | $ | 4,000 | $ | 177,000 | ||||||||||
Less: Direct Fixed costs | 8,800 | 9,100 | 3,700 | 21,600 | ||||||||||||||
Segment margin | $ | 78,200 | $ | 76,900 | $ | 300 | $ | 155,400 | ||||||||||
Less: Common fixed costs* | 7,500 | 7,250 | 1,950 | 16,700 | ||||||||||||||
Net operating income (loss) | $ | 70,700 | $ | 69,650 | $ | (1,650 | ) | $ | 138,700 | |||||||||
*Allocated based on total sales revenue.
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?
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 _______
3-b. Should MSI drop the POP product?
1 |
Profit will decrease by the amount of segment margin of POP |
Effect on Profit $300 decrease |
2 |
No, POP product should not be dropped |
3a |
Profit will increase by the amount of common fixed costs avoidable less segment margin |
Profit increase = 1200-300 = $900 |
Effect on Profit $900 increase |
b |
Yes, MSI should drop the POP product |
Required information "Morning Sky, Inc. (MSI), manufactures and sells computer games. The company has several product...
Chapter 7 Assignment i Saved Required information (The following information applies to the questions displayed below.) Part 3 of 4 Morning Sky, Inc. ( MSI), manufactures and sells computer games. The company has several product lines based on the age range of the target market. MSI sells both individual games as well as packaged sets. All games are in CD format, and some utilize accessories such as steering wheels, electronic tablets, and hand controls. To date, MSI has developed and...
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 ToddleTown...
Required information E7-6 through E7-10. (The following information applies to the questions displayed below.) Morning Sky, Inc. (MSI), manufactures and sells computer games. The company has several product lines based on the age range of the target market. MSI sells both individual games as well as packaged sets. All games are in CD format, and some utilize accessories such as steering wheels, electronic tablets, and hand controls. To date, MSI has developed and manufactured all the CDs itself as well...
MSI is considering eliminating a product from its Toddle Town 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. tion is aimed at children...
MSI is considering eliminating a product from its Toddle Town 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...
MSI is considering eliminating a product from its Toddle Town 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...
MSI is considering eliminating a product from its Toddle Town Tours collection. This collection is aimed at children one to three years of age and includes "ours" 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...
E7-7 Analyzing Keep-or-Drop Decision (LO 7-2, 7-5) MSI is considering eliminating a product from its ToddleTown Tours colection. This collection is aimed at children one to three years of age and includes lours" 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...
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 "ours' 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 COs are planned for this collection, but none is ready for production MSI's formation related to the ToddleTown...
Required information "Morning Sky, Inc. (MSI), manufactures and sells computer games. The company has several product lines based on the age range of the target market. MSI sells both individual games as well as packaged sets. All games are in CD format, and some utilize accessories such as steering wheels, electronic tablets, and hand controls. To date, MSI has developed and manufactured all the CDs itself as well as the accessories and packaging for all of its products. The gaming...