60.1K

Verified Solution

Link Copied!

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: E: (Click the icon to view the analysis.) Total fixed costs will not change if the company stops selling laminate flooring. Read the requirements Requirement 1. Prepare an incremental analysis to show whether Carolina Flooring should discontinue the laminate flooring product line. Will discontinuing laminate flooring add $26,000 to operating income? Explain. (Enter a "0" in an input box if there is no expected change as a result of discontinuing the laminate flooring product in this scenario.) Total x Data Table Requirements - Incremental Analysis for Discontinuation Decision Contribution margin lost if laminate flooring product line is dropped Less: Fixed cost savings if laminate flooring product line is dropped Operating income if laminate flooring is dropped Carolina Flooring Product Line Contribution Margin Income Statement For the Year Product lines 1. Prepare an incremental analysis to show whether Carolina Flooring should discontinue the laminate flooring product line. Will discontinuing laminate flooring add $26,000 to operating income? Explain. 2. Assume that the company can avoid $30,000 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. 3. 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? Sales revenue Wood flooring Laminate flooring Company Total $ 304,000 $ 126,000 $ 430,000 156,000 84,000 240,000 $ 148,000 $ 42,000 $ 190,000 Print Done Less: Variable expenses Contribution margin Less fixed expenses: Manufacturing Marketing and administrative 79,000 50,000 51,000 17,000 130,000 67,000 $ 19,000 $ Operating income (loss) (26,000) $ (7,000) Print Done

Answer & Explanation Solved by verified expert

See Answer