Capital Toys’ management is considering eliminating product A, which has been showing a loss for several years. The company’s annual income statement, in S000s, is as follows:

Required

a. Restate the income statement in segment margin format.

b. What would be the effect on income if product A were dropped?

c. Management is considering making a new product using product A’s equipment. If the new product’s selling price per unit were $12, its variable costs were $8, and its advertising costs were the same as for product A, how many units of the new product would the company have to sell to make the switch from product A to the new product worthwhile?

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А в Total Sales revenue $2,200 $1,400 $1,800 $5,400 Variable expenses 1,650 600 1,080 3,330 $ 800 $ 475 Contribution margin $ 550 $ 720 $2,070 $ 500 $ 520 Advertising expense Depreciation" expense Corporate expenses Total fixed expenses $1,495 15 10 20 45 90 80 105 275 $ 645 $ 75 $ 605 $ 565 $1,815 Operating income $ (55) $ 235 $ 255 aSpecific to each product. bSpecific to each product; no other use available, no resale value. "Allocated based on number of employees.