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: 1. $(31,000)
MOVIE STREET
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Get Help Now!Income Statement
For the Year Ended December 31, 2014
Total Blu-ray Discs DVD Discs
Sales Revenue $432,000 $ 305,000 $ 127,000
Variables 246,000 150,000 96,000
Contribution Margin 186,000 155,000 31,000
Fixed Cost:
Manufacturing 128,000 71,000 57,000
Selling & Administrative 67,000 52,000 15,000
Total Selling Expenses 195,000 123,000 72,000
Operating Income (Loss) $(9000) $32,000 $(41,000)
Total fixed costs will not change if the company stops selling DVDs.
Requirements
1. Prepare a differential analysis to show whether Movie Street should drop the DVD product line.
2. Will dropping DVDs add $41,000 to operating income? Explain.
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