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4 Required Information Part 3 of 4 [The following information applies to the questions displayed below ] Morning Sky, Incorporated (MSI), manufactures and sells computer games. The company has several product lines based 3.33 on the age range of the target market. MSI sells both individual gomes as well as packaged sets. All gomes are in CD points 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 -Book 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. Hint 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 Grocery Getaway, have impressive sales. However, sales for the third CD in the collection, Post Office Polks (POP), have lagged the others. Several other CDs are planned for Print this collection, but none is ready for production. MSI's information related to the ToddleTown Tours collection follows: References Segmented Income Statement for MSI's ToddleTown Tours Product Lines Pet Store Post Office Parade Grocery Getaway Polka Total sales revenue $35,083 $ 290,080 Variable costs 55, 880 51, 808 31,883 BBQ" LET Contribution margin $ 75, 080 $ 74, 808 $ 4,808 830" EST Less: Direct Fixed costs 8, 088 3,380 19,280 Segment margin 67, 080 3 66, 108 $ 708 Da8' EEL Less: Common fixed costs* 6, 258 1,758 14, 580 Net operating income (loss) $ 60, 580 $ 59, 858 $ (-1,858) $ 119,380 `Allocated based on total sales revenue. MSI has determined that elimination of the Post Office Polke (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. 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. 3-b. Should MSI drop the POP product? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 34 Required 3B Calculate the incremental effect on profit if the POP product is eliminated. Effect an Profil S 1,050 Decrease

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