Top managers of Carolina Flooring are alarmed by their operating losses. They are considering dropping the laminate flooring product line. Company accountants have prepared the following analysis to help make this decision:

$($Click the icon to view the analysis.$)$

Total fixed costs will not change if the company stops selling laminate flooring.

Requirement $1.$ Prepare an incremental analysis to show whether Carolina Flooring should discontinue the laminate flooring product line. Will discontinuing laminate flooring add $$24,000$ to operating income? Explain. $($Enter a $"0"$ in an input field if there is no expected change as a result of discontinuing the laminate flooring product in this scenario.$)$

Incremental Analysis for Discontinuation Decision

Total

Contribution margin lost if laminate flooring product line is dropped

Data table

Requirements

Prepare an incremental analysis to show whether Carolina Flooring should discontinue the laminate flooring product line. Will discontinuing laminate flooring add $$24,000$ to operating income? Explain.

Assume that the company can avoid $$28,000$ of fixed expenses by discontinuing the laminate flooring product line $($these costs are direct fixed costs of the laminate flooring product line$).$ Prepare an incremental analysis to show whether the company should stop selling laminate flooring.

Now, assume that all of the fixed costs assigned to laminate flooring are direct fixed costs and can be avoided if the company stops selling laminate flooring. However, marketing has concluded that wood flooring sales would be adversely affected by discontinuing the laminate flooring line $($retailers want to buy both from the same supplier$).$ Wood flooring production and sales would decline $10\%.$ What should the company do$?$

$\backslash$table$[[,*A,,$B$,,$C$,,$D$],[1,$Carolina Flooring$],[2,$Product Line Contribution Margin Income Statement$],[3,$For the Year$],[4,,$Product lines,,$],[5,,\backslash$table$[[$Wood$],[$flooring$]],\backslash$table$[[$Laminate$],[$flooring$]],\backslash$table$[[$Company$],[$Total$]]],[6,$Sales revenue,$$,305,000,$$$,120,000,$$$,425,000],[7,$Less: Variable expenses,,$155,000,,80,000,,235,000],[8,$Contribution margin,$$,150,000,$$$,40,000,$$$,190,000],[9,$Less fixed expenses:,,,,,,$],[10,$Manufacturing,,$78,000,,53,000,,131,000],[11,\backslash$table$[[$Marketing and$],[$administrative$]],,56,000,,11,000,,67,000],[12,$Operating income $($loss$),$$$,16,000,$$$,(24,000),$$$,(8,000)$