5 Morning Sky, Inc. (MSI), manufactures and sells computer games. The company has several product lines based on the age

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5 Morning Sky Inc Msi Manufactures And Sells Computer Games The Company Has Several Product Lines Based On The Age 1 (48.66 KiB) Viewed 62 times

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5 Morning Sky, Inc. (MSI), manufactures and sells computer games. The company has several product lines based on the age range of the target market. MSI sells both individual games as well as packaged sets. All games are in CD 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. f3 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 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. K 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. MSI's information related to the ToddleTown Tours collection follows: Segmented Income Statement for MBI's ToddleTown Tours Product Lines Post office Pet Stord Grocery Parade Polks Getavay $115,000 $33,000 Sales revenue Variable conta $120,000 51,000 Total $260,000 127,000 $141,000 47,000 Contribution margin $ 69,000 29,000 $4,000 3,100 Leas: Direct Fixed costs 7,600 $61,400 6,000 Segment margin 18,000 $123,000 13,400 $ 68,000 7,300 $ 60,700 $ 900 5,750 1,650 54,950 $ (750) $109,600 Lesas Common fixed coste $ 55,400 Net operating income (loss) "Allocated based on total sales revenue. the Post Office Polka (POP) program would not impact sales of the other two items. The
Segment margin XP-600 61,400 6,000 3,100 900 17,300 #60,700 $ 5,750 $54,950 18,000 $123,000 13,400 Lean Common fixed contar 1,650 Net operating income (lome) 55,400 (750) $109,600 "Allocated based on total sales revenue. 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. 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. Reg 1 Reg 2 Req3A Reg 38 Calculate the incremental effect on profit if the POP product is eliminated. Effect on Prot [wn] Rag 2 > 100 < Prav 6 Noxd
Segment margin Leses Common fixed costs* Net operating income (loss) $61,400 6,000 $60,700 5,750 S 900 $123,000 1,650 13,400 $ 55,400 $ 54,950 S (750) $109,600 "Allocated based on total sales revenue. 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. Dok Required: 1. Calculate the incremental effect on profit if the POP product is eliminated. nt 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. 1 t 3-b. Should MSI drop the POR product? Complete this question by entering your answers in the tabs below. ces Reg 1 Reg 2 Reg 3A Reg 38 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. Effect on Profit Increase < Req 2 Req 38 > 30 of 6 Next < Prev