Mohave Corporation is considering eliminating a product from its Sand Trap line of beach umbrellas. This collection is aimed at peoplewho spend time on the beach or have an outdoor patio near the beach. Two products, the Indigo and Verde umbrellas, haveimpressive sales. However, sales for the Azul model have been dismal.Mohave's information related to the Sand Trap line is shown as follows.Segmented Income Statement for Mohave'sSand Trap Beach Umbrella ProductsIndigo$ 60,00034,000$ 26,0001,900$ 24,10017,840$ 6,260Sales revenueVariable costs.Contribution marginLess: Direct fixed costsSegment marginCommon fixed costs*Net operating income (loss)*Allocated based on total sales revenueMohave determined that eliminating the Azul model would cause sales of the Indigo and Verde models to increase by 10 percent and15 percent, respectively. Variable costs for these two models would increase proportionately. Although the direct fixed costs could beeliminated, the common fixed costs are unavoidable. The common fixed costs would be redistributed to the remaining two products.3-b. Should Mohave drop the Azul model?3-c. What is the increase or decrease in the net operating income of Mohave?Complete this question by entering your answers in the tabs below.Req 1ARequired:1-a. Complete the table given below, assuming Mohave Corporation drops the Azul line.1-b. Will Mohave's net operating income increase or decrease if the Azul model is eliminated? By how much?2. Should Mohave drop the Azul model?3-a. Complete the table given below assuming that Mohave had no direct fixed overhead in its production information and the entire$51,000 of fixed cost was common fixed cost.Sales RevenueVariable CostsReq 1BContribution MarginDirect Fixed CostsReq 2Segment MarginCommon Fixed CostsNet Operating Income (Loss)Req 3AVerde$ 60,00031,000$ 29,0002,500$ 26,50017,840$ 8,660IndigoReq 3BComplete the table given below, assuming Mohave Corporation drops the Azul line.Note: Do not round intermediate calculations. Round Common Fixed Costs to the nearest whole dollar.< Req 1AVerdeReq 3CAzul$ 30,00026,000$4,0002,000$ 2,0008,920$ (6,920)Total$ 150,00091,000$ 59,0006,400$ 52,60044,600$ 8,000TotalReq 1B >

The cost which increases or decreases after dropping a product line is called relevant cost. The…

Mohave Corporation is considering eliminating a product from its Sand Trap line of beach umbrellas. This collection is aimed 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 as follows. Segmented Income Statement for Mohave's Sand Trap Beach Umbrella Products Indigo $ 60,000 34,000 $ 26,000 1,900 $ 24,100 17,840 $ 6,260 Sales revenue Variable costs Contribution margin Less: Direct fixed costs Segment margin Common fixed costs* Net operating income (loss) *Allocated based on total sales revenue Req 1A Mohave 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 fixed costs could be eliminated, the common fixed costs are unavoidable. The common fixed costs would be redistributed to the remaining two products. Sales Revenue Variable Costs Required: 1-a. Complete the table given below, assuming Mohave Corporation drops the Azul line. 1-b. Will Mohave's net operating income increase or decrease if the Azul model is eliminated? By how much? 2. Should Mohave drop the Azul model? 3-a. Complete the table given below assuming that Mohave had no direct fixed overhead in its production information and the entire $51,000 of fixed cost was common fixed cost. 3-b. Should Mohave drop the Azul model? 3-c. What is the increase or decrease in the net operating income of Mohave? Complete this question by entering your answers in the tabs below. Req 1B Contribution Margin Direct Fixed Costs Req 2 Segment Margin Common Fixed Costs Net Operating Income (Loss) Req 3A Indigo Verde $ 60,000 31,000 $ 29,000 2,500 $ 26,500 17,840 $ 8,660 Req 3B < Req 1A Complete the table given below, assuming Mohave Corporation drops the Azul line. Note: Do not round intermediate calculations. Round Common Fixed Costs to the nearest whole dollar. Verde Req 3C Azul $ 30,000 26,000 $4,000 2,000 $2,000 8,920 $ (6,920) Total $ 150,000 91,000 $ 59,000 6,400 Total $ 52,600 44,600 $ 8,000 Req 1B >