Question

Top managers of Movie Street 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 Movie Street can avoid $36,000 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 Movie Street should stop selling DVDs. (Enter decreases to revenues with a parentheses or minus sign.) i Data Table Expected decrease in revenues Expected decrease in expenses: Variable expenses Fixed expenses Movie Street Expected decrease in total expenses Expected in operating income Decision: Income Statement For the Year Ended December 31, 2016 Blu-ray Total Discs $ 433,000 $ 307,000 $ 248,000 151,000 DVD Discs 126,000 97,000 Sales Revenue Variable Costs 185,000 156,000 29,000 Contribution Margin Fixed Costs: Manufacturing Selling and Administrative 123,000 68,000 191,000 (6,000) $ 73,000 55,000 128,000 28,000 $ 50,000 13,000 63,000 (34,000) Total Fixed Expenses $ Operating Income (Loss) Print Done Choose from any list or enter any number in the input fields and then continue to the next question.

Answer 1

Differential analysis :- Particulars Present Total Including both 433,000 Total after DVD Stops selling Increase (Decrease) 248,000 Expected decrease in Revenues Expected decrease in Variable cost Contribution margin Expected decrease in Fixed cost Expected Increase/(Decrease) in Operating income 185,000 191,000 (6,000 307,000 151,000 156,000 155,000 1,000 (126,000) (97,000) (29,000) (36,000) 7,000 Since there is a INCREASE in Operating Income by $ 7,000 due stop selling DVD's, Decision should be YES, stop selling DVD Discs.