E8-36B Decide whether to drop a product line (Learning Objecrive 5) Top managers of City Video are alarmed by their operating losses. They are considering dropping the DVD produet line. Company aceountants 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 an incremental analysis to sbow whether City Vidoo should drop the DVD product line. Will dropping the DVDs add 536,000 to operatiog income? Explain. 2. Assume that City Video can avoid \$36,000 of fixed expenses by droppiag the DVD product liae, (These costs are direct lixed costs of the DVD product lipe.) Prepare an incremental analysis to show whether City Video sbould stop selling DVDs. 3. Now, assume that all \$67, 000 of fixed costs assigned to DVDs are direct fixed costs and can be avoided if the company stops selling DVDs. However, marketing bas concluded that Blu-ray dise sales would be adversely affected by discontinuing the DVD line. (Retailers want to buy both from the same supplier.) Bls-ray disc production and sales would decline 10%. What should the company do