Question

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 Tours collection follows: Segmented Income Statement for MSI's Todd Town Tours Product Lines Sales revenue Contribution margin Less: O Fixed cost Segment margin Le Common food costs Nel pering income () Pet Store Parade $150,000 63.000 $ BT.000 8.000 $ 78.200 7.500 707.00 Grocery Getaway $145,000 50000 6000 1.100 76000 7.250 $0.00 Office Poka $30.000 $33,000 35.000 157 000 4.000 $177.000 2700 21.600 300 $155.400 1950 10,700 $000 $138.700 *Allocated based on total sales dollars. MSI has determined that elimination of the Post Office Poika (POP) program would not impact sales of the other two tome. The remaining food overhead currently alocated to me POP product would be redited to the remaining to products 1. Caled the incremental efect on profit the POP product is limited

Answer 1

Solution 1:

Incremental effect on profit on dropping POP = Saving in fixed cost - Loss of contribution margin

= $3,700 - $4,000 = - $300 decrease

Solution 2:

MSI should not drop the POP product

Solution 3a:

Incremental effect on profit on dropping POP = Saving in fixed cost - Loss of contribution margin

= ($3,700 + $1,200) - $4,000 = $900 Increase

Solution 3b:

Yes, MSI should drop the POP product.