2 3 4 5 6 7 Sales revenue Less: Variable expenses 8 9 Contribution margin 10 Less fixed expenses: 11 Maine Flooring Product Line Contribution Margin Income Statement For the Year Ended December 31 Manufacturing 12 Marketing and administrative 13 Operating income (loss) 14 Product lines Wood flooring Laminate flooring $ 303,000 $ 154,000 $ 149,000 $ 78,000 HAUSTMENT 52,000 $ 19,000 $ 120,000 $ Company Total 423,000 234,000 189,000 80,000 40,000 $ 49,000 15,000 (24,000) $ 127,000 67,000 (5,000) Total fixed costs will not change if the company stops selling laminate flooring. Requirements 1. Prepare an incremental analysis to show whether Maine Flooring should discontinue the laminate flooring product line. Will discontinuing the laminate flooring add $24,000 to operating income? Explain. 2. Assume that the company can avoid $27,000 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?

Total fixed costs will not change if the company stops selling laminate flooring. Requirements 1. Prepare an incremental analysis to show whether Maine Flooring should discontinue the laminate flooring product line. Will discontinuing the laminate flooring add $24,000 to operating income? Explain. 2. Assume that the company can avoid $27,000 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, assumb that all of the fixed costs assigned to laminate flooring are direct fixed costs and can be avoided if the company stops solling laminate flooring. However, marketing has conctuded that wood flooring sales would be adversely affected by discontinuing the Iaminate flooring line (retailers want to buy both from the same supplier). Wood flooring production and sales would decline 10% What should the company do