E$8-26$: Discontinue Decision

Top managers of Vermont Flooring are alarmed by their operating losses. They are con$-$

sidering dropping the laminate flooring product line. Company accountants have pre$-$

pared the following analysis to help make this decision:

Req. $1$: Assume all of Vermont Flooring's fixed costs are unavoidable. Should they discontinue the

laminate flooring product line? Will doing so add $$28,000$ to operating income? Explain.

Req. $2$: Assume Vermont Flooring can avoid $$32,000$ of fixed expenses $($directly related to the

laminate flooring product line$)$ if they discontinue it$.$ Should they do so$?$

eq$.3$: Assume all of the fixed costs assigned to the laminate flooring product line are direct fixed

sts that can be avoided if the line is discontinued. However, marketing has concluded that wood

ring sales$/$production would decline by $10\%$ if they discontinue the laminate line $($as many

ilers want to buy both types from the same supplier$).$ What should the company do$?$