Question

Top managers of Movies and More are alarmed by their operating losses. They are considering dropping the DVD product line. Company accountants have prepared the following analysis to help make this decision: E (Click the icon to view the analysis.) Total fixed costs will not change if the company stops selling DVDS. Requirements Data Table 1. Prepare a differential analysis to show whether Movies and More should drop the DVD product line. 2. Will dropping DVDS add $39,000 to operating income? Explain. Movies and More Requirement 1. Prepare a differential analysis to show whether Movies and More should drop the DVD product line. Income Statement Begin by preparing a differential analysis to show whether Movies and More should drop the DVDS product line. (Enter decre For the Year Ended December 31, 2016 Expected decrease in revenues-Dropping DVDS Blu-ray DVD Expected decrease in expenses-Dropping DVDS Total Discs Discs in operating income Expected Sales Revenue $ 426,000 $ 301,000 $ 125,000 251,000 159,000 92,000 Variable Costs Contribution Margin 175,000 142,000 33,000 Fixed Costs: Manufacturing 133,000 77,000 56,000 75,000 59,000 16,000 Selling and Administrative 208,000 136,000 72,000 Choose from any list or enter any number in the input fields and then click Check Answer. Total Fixed Expenses 6,000 $ (33,000) $ (39,000) Operating Income (Loss) parts remaining Clear k Answe

Answer 1

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requirement 1 expected decrease in revenues-dropping DVDs expected decrease in expenses-dropping DVDs $ 125,000 $ 92,000 $ 33,000 expected decrease in operating income requirement 2 | NO dropping DVDs shall not add $39,000 to operating income reason - because even after dropping DVDs, the total fixed costs shall remain the same i.e. the fixed cost of $72,000 allocated to DVDs shall continue to occur. So, dropping DVDs shall instead decrease operating income by $33,000