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VIDEO AVENUE Income Statement For the Year Ended December 31, 2018 Blu-ray Discs DVD Discs Total Net Sales Revenue $ 437,000 $ 308,000 $ 129,000 Variable Costs 250,000 154,000 96,000 Contribution Margin 187,000 154,000 33,000 Fixed Costs: Manufacturing 132,000 76,000 S6,000 Selling and Administrative 65,000 51,000 14,000 Total Fixed Expenses 197,000 127,000 70,000 Operating Income (Loss) S (10,000) S 27,000 5 (37,000)

VIDEO AVENUE Income Statement For the Year Ended December 31, 2018 Blu-ray Discs DVD Discs Total Net Sales Revenue $ 437,000 $ 308,000 $ 129,000 Variable Costs 250,000 154,000 96,000 Contribution Margin 187,000 154,000 33,000 Fixed Costs: Manufacturing 132,000 76,000 S6,000 Selling and Administrative 65,000 51,000 14,000 Total Fixed Expenses 197,000 127,000 70,000 Operating Income (Loss) S (10,000) S 27,000 5 (37,000)

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Making decisions about dropping a product

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 help make this decision:

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

Requirements

  1. Prepare a differential analysis to show Whether Video Avenue should drop the DVD Product fins.
  2. Will dropping DVDs add $37,000 to operating income? Explain.
VIDEO AVENUE Income Statement For the Year Ended December 31, 2018 Blu-ray Discs DVD Discs Total Net Sales Revenue $ 437,000 $ 308,000 $ 129,000 Variable Costs 250,000 154,000 96,000 Contribution Margin 187,000 154,000 33,000 Fixed Costs: Manufacturing 132,000 76,000 S6,000 Selling and Administrative 65,000 51,000 14,000 Total Fixed Expenses 197,000 127,000 70,000 Operating Income (Loss) S (10,000) S 27,000 5 (37,000)
Transcribed Image Text:VIDEO AVENUE Income Statement For the Year Ended December 31, 2018 Blu-ray Discs DVD Discs Total Net Sales Revenue $ 437,000 $ 308,000 $ 129,000 Variable Costs 250,000 154,000 96,000 Contribution Margin 187,000 154,000 33,000 Fixed Costs: Manufacturing 132,000 76,000 S6,000 Selling and Administrative 65,000 51,000 14,000 Total Fixed Expenses 197,000 127,000 70,000 Operating Income (Loss) S (10,000) S 27,000 5 (37,000)
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