4 Barbour Corporation, located in Buffalo, New York, is a retailer of high-tech products and is known for its excellent quality and innovation. Recently, the firm conducted a relevant cost analysis of one of its product lines that has only two products, T-1 and T-2. The sales for T-2 are decreasing and the purchase costs are increasing. The firm might drop T-2 and sell only T-1. Barbour allocates fixed costs to products on the basis of sales revenue. When the president of Barbour saw the income statements (see below), he agreed that T-2 should be dropped. If T-2 is dropped, sales of T-1 are expected to increase by 10 percent next year, but the firm's cost structure will remain the same. 1. 2. 3 Sales Variable costs: Cost of goods sold Belling & adninistrative contribution margin Fixed expenses Fixed corporate coats Fixed selling and administrative Total fixed expenses Operating income T-1 $300,000 90,000 15,000 $195,000 Required % increase in sales from T-1 Required % increase in sales from T-1 80,000 32,000 $112,000 $83,000 Required: 1. Find the expected change in annual operating income by dropping T-2 and selling only T-1. 2. By what percentage would sales from T-1 have to increase in order to make up the financial loss from dropping T-2? (Enter your answer as a percentage rounded to 2 decimal places (i.e. 0.1234 should be entered as 12.34).) 7-2 $ 340,000 3. What is the required percentage increase in sales from T-1 to compensate for lost margin from T-2, if total fixed costs can be reduced by $58,500? (Enter your answer as a percentage rounded to 2 decimal places (.e. 0.1234 should be entered as 12.34).) 170,000 70,000 $100,000 % 95,000 41,000 $ 136,000 $(36,000)