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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 MSIs information related to the Toddle Town Tours collection follows Segmented Income Statement for MSI's Toddle Town Tours Product Lines Post Pet Store Grocery Office Polka Parade Getawa Total $105,000 $100,000 $30,000 $235,000 41,000 25,000 111,000 0 5 59,000 $ 5,000 124,000 4800 18.200 200 105,800 Sales revenue Variable costs 45,000 60,000 7.000 Contribution margin Segment margin Net operating income (loss) Less: Direct Fixed costs 0 52,600 Less: Common fixed costs 5.250 11,750 5 47.750 4T600 5(1.300) S 94.050 Allocated based on total sales dollars. 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? Yes No 3-a. Calculate the incremental effect on profit if the POP product is eliminated, Suppose that $1,000 of the common fixed costs could be avoided if the POP product line were eliminated Effect on Profit

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