Mohave Corp. is considering eliminating a product from its Sand Trap line of bea

Question

Mohave Corp. is considering eliminating a product from its Sand Trap line of beach umbrelas. This collection is almed 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. for Mohave's Sand Trap Beach Umbrella Products Tota Sales revenue Variable costs $60,000 $60,000 $30,000 $150,000 91,000 $26,000 $29,000 $ 4,000 59,000 34,0003100026000 91 Contribution margin Less: Direct Fixed costs Segment margin Common fixed costs $24,100 $26,500 2,000 $52,600 17 840 17,840 8920 44600 Net operating income (loss) Allocated based on total sales revenue Mohave has determined that eliminating the Azui model would cause sales of the Indigo and Verde modeis to increase by 10 percent and 15 percent, respectively costs for these two models would increase proportionately. Although the direct fixed costs could be eliminated, the common foxed costs are unavoidable. The Variable common fixed costs would be redistributed to the remaining two products. Required: whole dollar.) 1-a. Complete the table given below, rf Mohave Corp drops the Azul line. (Do not round intermediato calculations. Round Common Fixod Costs to the nearest Sales Revenue Variable Costs Contribution Margin Direct Fixed Costs Segment Margin Common Fixed Costs Net operating income Coss)

Explanation / Answer

Answer 1-a. Indigo Verde Total Sales Revenue                         66,000                                 69,000          135,000 $60,000 X 110% $60,000 X 115% Variable Costs                         37,400                                 35,650             73,050 $34,000 X 110% $31,000 X 115% Contribution Margin                         28,600                                 33,350             61,950 Less: Direct Fixed Costs                           1,900                                   2,500               4,400 Segment Margin                         26,700                                 30,850             57,550 Less: Common Fixed Costs             44,600 Net Operating Income(Loss)             12,950 Answer 1-b. Change in Net Operating Income (Loss) by                           4,950 Answer 2. Yes Answer 3-a. Change in Contribution Margin Contribution Margin Gained on Indigo                           2,600 Contribution Margin Gained on Verde                           4,350 Contribution Margin Lost on Azul                         (4,000) Net Increase in Contribution Margin                           2,950 Change in Fixed Costs                                  -   Net Change in Profit if Azul is Eliminated                           2,950 Answer 3-b. Yes Answer 3-c. Change in Net Operating Income (Loss) by                           2,950

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