Top managers of Video Avenue are alarmed by their operating losses. They are considering dropping the DVD product line. Company accountants have prepared the following analysis to helo make this decision: Total fixed costs will not change if the company stops selling DVDs. Video Avenue Income Statment For the Year Ended December 31, 2018 Total Blue-ray DVE Discs Net Sale Revenue $ 437,000 $ 308,000 $ 129,000 Variable Costs 250,000 154,000 96,000 Contribution Margin 187,000 154,000 33,000 Fixed Cost Manufacturing 132,000 76,000 56,000 Selling and Administrative 65,000 51,000 14,000 Total Fixed Expenses 197,000 127,000 70,000 Operating Income(Loss) $(10,00) $ 27,000 $ (37,000) Requirements: 1. Prepare a differential analysis to show whether Video. Avenue should drop the DVD product line. 2. Will dropping DVDs add $37,000 to operating income? Explain
Top managers of Video Avenue are alarmed by their operating losses. They are considering dropping the DVD product line. Company accountants have prepared the following analysis to helo make this decision:
Total fixed costs will not change if the company stops selling DVDs.
Video Avenue
Income Statment
For the Year Ended December 31, 2018
Total Blue-ray DVE Discs
Net Sale Revenue $ 437,000 $ 308,000 $ 129,000
Variable Costs 250,000 154,000 96,000
Contribution Margin 187,000 154,000 33,000
Fixed Cost
Manufacturing 132,000 76,000 56,000
Selling and Administrative 65,000 51,000 14,000
Total Fixed Expenses 197,000 127,000 70,000
Operating Income(Loss) $(10,00) $ 27,000 $ (37,000)
Requirements:
1. Prepare a differential analysis to show whether Video. Avenue should drop the DVD product line.
2. Will dropping DVDs add $37,000 to operating income? Explain
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
