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: (Click the icon to view the analysis.) Assume that Movies and More can avoid $37,000 of fixed costs by dropping the DVD product line (these costs are direct fixed costs of the DVD product line). Prepare a differential analysis to show whether Movies and More should stop selling DVDs. (Enter decreases to revenues with a parentheses or minus sign.) Expected decrease in revenues © Data Table Expected decrease in expenses: Variable expenses Fixed expenses Expected decrease in total expenses Expected in operating income DVD Decision: 126,000 97,000 Movies and More Income Statement For the Year Ended December 31, 2016 Blu-ray Total Discs Sales Revenue 432,000 $ 306,000 $ Variable Costs 253,000 156,000 Contribution Margin 179,000 150,000 Fixed Costs: Manufacturing 124,000 74,000 Selling and Administrative 65,000 51,000 189,000 125,000 Total Fixed Expenses Operating Income (Loss) $ (10,000) $ 25,000 $ 29,000 50,000 14,000 64,000 (35,000) Print Print Done] Done

Answer 1

Expected decrease in revenue		126000
Expected decrease in rexpenses
Variable	97000
Fixed	37000
Expected decrease in rexpenses		134000
Expected Decrease in operating income		-8000
Decision	Yes, Stop

Since the losses will decrease by eliminating DVD division, it is advised to stop the production.