aimed a people to spend time on the beach or have an outdoor pato near the beach

Question

aimed a people to spend time on the beach or have an outdoor pato near the beach Two products, the Monave Corp ts cons denng eliminating a product rom its and Trap 1 ne ot beach umbrellas This collecti 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 Mohaves Sand Trap Beach Umbrella Products go_-verde A otal - Sales revenue Varlable costs $60,000 $60,000 30,000 5150,000 34,000 31000 260009100 Contribution margin Less: Direct Fixed costs $26,000 $29,000 4,000 59,000 6.400 $24,100 $26,500 S 2,000 52,600 8,920 4.600 2,000 Segment margin Common fixed costs 17,840 17,840 Net operating income (oss) 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 tixed costs could be eliminated, the common Tixed costs are unavoidable. The common fixed costs would be redistributed to the remaining two producs Required: 1-a. Complete the tableien beloww, if Mohave Corp drops the Azul line. (Do not round intermediate calculations. Round Common Fixed Costs to the nearest whole dollar.) Verde otal Sales Revenue Variable Costs Contribution Margin Direct Fixed Costs Segmant Margin Common Fixed Costs Net operating income floss) 1-b. MIll Mohave's net operating income increase or decrease it the Azul model is eliminatea? By how much? in Net Income (Loss) 2. Should Mohave drop the Azul model? Na 3-a. Complete the table given below assuming thot Mohave had no direct fixed overhead in its production information and the entire S51,000 of fixed cost was common fixed cost. Contribution Margin Gained on Indigo Contribution Margin Gained on Verde Contribution Margin Lost on Azul Net Increase in Contribution Margin Change in Fixed Costs Net Change in Profit if Azul is Eliminated 3-b. Should It the drop Azul model? O Yes No 3-C. What is the increese or decrease in the net opereting income of Mohave? in Net Income (Loss)

Explanation / Answer

1-a.

Common fixed costs - Indigo: $44600 x $66000/$135000 = $21804.44

Common fixed costs - Verde: $44600 x $69000/$135000 = $22795.56

1-b. Change in Net Operating Income (Loss) by: $4950 Increase

2. Yes

3-a.

3-b. Yes

3-c. Change in Net Operating Income (Loss) by: $2950 Increase

Indigo Verde Total Sales revenue 66000 69000 135000 Variable costs 37400 35650 73050 Contribution margin 28600 33350 61950 Direct fixed costs 1900 2500 4400 Segment margin 26700 30850 57550 Common fixed costs 21804 22796 44600 Net operating income (loss) 4896 8054 12950

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