Barbour Corporation, located in Buffalo, New York, is a retailerof high-tech products and is known for its excellent quality andinnovation. Recently, the firm conducted a relevant cost analysisof one of its product lines that has only two products, T-1 andT-2. The sales for T-2 are decreasing and the purchase costs areincreasing. The firm might drop T-2 and sell only T-1. Barbourallocates fixed costs to products on the basis of sales revenue.When the president of Barbour saw the income statements (seebelow), he agreed that T-2 should be dropped. If T-2 is dropped,sales of T-1 are expected to increase by 10% next year, but thefirm’s cost structure will remain the same. T-1 T-2 Sales $ 280,000$ 324,000 Variable costs: Cost of goods sold 86,000 162,000 Selling& administrative 12,000 66,000 Contribution margin $ 182,000 $96,000 Fixed expenses: Fixed corporate costs 76,000 91,000 Fixedselling and administrative 28,000 37,000 Total fixed expenses $104,000 $ 128,000 Operating income $ 78,000 $ (32,000 ) Required:1. Find the expected change in annual operating income by droppingT-2 and selling only T-1. 2. By what percentage would sales fromT-1 have to increase in order to make up the financial loss fromdropping T-2? (Enter your answer as a percentage rounded to 2decimal places (i.e. 0.1234 should be entered as 12.34).) 3. Whatis the required percentage increase in sales from T-1 to compensatefor lost margin from T-2, if total fixed costs can be reduced by$52,500? (Enter your answer as a percentage rounded to 2 decimalplaces (i.e. 0.1234 should be entered as 12.34).)
