Paul Company has three product lines in its retail stores: books, videos, and music.

The allocated fixed costs are based on units sold and are unavoidable. Demand of individual products is not affected by changes in other product lines. Results of the fourth quarter are presented below:

Prepare a differential analysis of the effect of dropping the Video product line.

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Units sold Revenue Variable departmental costs Direct fixed costs Allocated fixed costs Net income (loss) Books 1,000 $ 24,000 15,000 3,000 4,400 $ 1,600 Music 2,000 $ 48,000 22,000 6,000 8,800 $ 11,200 Videos 2,000 $ 30,000 23,000 4,000 8,800 $ (5,800) Total 5,000 $ 102,000 60,000 13,000 22,000 $ 7,000