Question

show all work please! i cant figure out the ones in the blanks but how do you get values for the the common fixed costs and the net operating income (loss)?

Mohave Corp. is considering eliminating a product from its Sand Trap line of beach umbrellas. This collection is aimed at people who spend time on the beach or have an outdoor patio near the beach. Two products, the Indigo and Verde umbrellas, have impressive sales. However, sales for the Azul model have been dismal. Mohave's information related to the Sand Trap line is shown below. Segmented Income Statement for Mohave's Sand Trap Beach Umbrella Products Indigo Verde Azul Total Sales revenue $60,000 $60,000 $30,000 $150.000 Variable costs 34,000 31.000 26,000 91,000 Contribution margin $26,000 $29,000 $4,000 $ 59,000 Less: Direct fixed costs 1,900 2,500 2,000 6,400 Segment margin $24,100 $26,500 $2,000 $ 52,600 Common fixed costs. 17,840 17,840 8.920 44,600 Net operating Income (loss) $ 6,260 $ 3.660 $16.920) $ 8,000 "Allocated based on total sales revenue Mohave has determined that eliminating the Azul model would cause sales of the Indigo and Verde models to increase by 10 percent and 15 percent, respectively. Variable costs for these two models would increase proportionately. Although the direct fixed costs could be eliminated, the common fixed costs are unavoidable. The common fixed costs would be redistributed to the remaining two products Required: 1-a. Complete the table given below, assuming Mohave Corp. drops the Azul line 1-b. Wil Mohave's net operating income increase or decrease if the Azul model is eliminated? By how much? 2. Should Mohave drop the Azul model? 3-a. Complete the table given below assuming that Mohave had no direct fixed overhead in its production information and the entire $51,000 of fixed cost was common fixed cost. 3-b. Should Mohave drop the Azul model? 3-c. What is the increase or decrease in the net operating income of Mohave? Complete this question by entering your answers in the tabs below. Req IA Reg 1B Reg 2 Reg 3A Reg 38 Req3C Complete the table given below, assuming Mohave Corp, drops the Azul line. (Do not round intermediate calculations Round Common Fixed Costs to the nearest whole dollar) $ Sales Revenue Variable Costs Contribution Margin Direct Foxed Costs Segment Margin Common Fixed Costs Net Operating Income (Loss) Indigo $ 66,000 37.400 28.600 1,900 26,700 Verde 69,000 35,650 33,350 2,500 30,850 Total 135,000 73,050 61,950 4.400 57,550 44,600 12.950 $

Answer 1

1-a

	Indigo	Verde	Total
Sales Revenue	$          66,000	$          69,000	$       1,35,000
Variable Costs	$          37,400	$          35,650	$          73,050
Contribution Margin	$          28,600	$          33,350	$          61,950
Direct Fixed Costs	$            1,900	$            2,500	$            4,400
Segment Margin	$          26,700	$          30,850	$          57,550
Common Fixed Costs	$          21,804	$          22,796	$          44,600
Net Operating Income / (Loss)	$            4,896	$            8,054	$          12,950

Common Fixed costs $44600 has been redistributed to Indigo and Verde on basis of sales revenue.
Indigo = $44600 / $135000 x $66000 = $21804
Verde = $44600 / $135000 x $69000 = $22796

	Indigo	Verde
Sales Revenue	=60000*1.1	=60000*1.15
Variable Costs	=34000*1.1	=31000*1.15

1-b Net operating income has been increased by $4950 i.e. $12950 - $8000

2. Since there is increase in operating income, Azul should be dropped.

3-a

	Indigo	Verde	Total
Sales Revenue	$          66,000	$          69,000	$       1,35,000
Variable Costs	$          37,400	$          35,650	$          73,050
Contribution Margin	$          28,600	$          33,350	$          61,950
Common Fixed Costs	$          24,933	$          26,067	$          51,000
Net Operating Income / (Loss)	$            3,667	$            7,283	$          10,950

Common Fixed costs $51000 has been redistributed to Indigo and Verde on basis of sales revenue.
Indigo = $51000 / $135000 x $66000 = $24933
Verde = $51000 / $135000 x $69000 = $26067

3-b Azul line should be dropped since Operating income has been increased

3-c Increase in Net operating income = $2950 i.e. $10950 - $8000