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Learning Objective 3 1. $(33,000) E25-13 Making dropping a product decisions Top managers of Best...

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Accounting

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Learning Objective 3 1. $(33,000) E25-13 Making dropping a product decisions Top managers of Best Video 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: (Requirement 1 only) BEST VIDEO Income Statement For the Year Ended December 31, 2016 Blu-ray Total Discs Sales Revenue $ 432,000 309,000 Vairable Costs 240,000 150,000 Contribution Margin 192,000 159.000 Fixed Costs: Manufacturing 134,000 75.000 Selling and Administrative 69,000 52,000 Total Fixed Expenses 203,000 127,000 Operating Income (Loss) S (11,000) $ 32,000 DVD Discs 5 123,000 90,000 33,000 59,000 17,000 76,000 S (43,000) Total fixed costs will not change if the company stops selling DVDs. Requirements 1. Prepare a differential analysis to show whether Best Video should drop the DVD product line. 2. Will dropping DVDs add $43,000 to operating income? Explain. G 1 Requirement 1: 2 3 4 5 Expected decrease in revenue Expected decrease in total variable costs Expected decrease in operating income 600 10 Requirement 2

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