Top managers of Movie Street are alarmed by their operating losses. They are considering dropping the DVD

Top managers of Movie Street 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 Movie Street should drop the DVD product line.

2. Will dropping DVDs add $ 41,000 to operating income? Explain.

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MOVIE STREET Income Statement For the Year Ended December 31, 2014 Blu-ray Discs DVD Discs Sales Revenue Variable Costs Contribution Margin Fixed Costs Total 432,000 246,000 186,000 $ 305,000 127,000 96,000 31,000 150,000 155,000 Manufacturing Selling and Administrative 57,000 15,000 72,000 $ (9,000) 32,000 (41,000) 128,000 67,000 195,000 71,000 52,000 123,000 Total Fixed Expenses Operating Income (Loss