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Homework: HW #6 - Chapter 8 Save Score: 0 of 1 pt 6 of 10 (2 complete) HW Score: 20%, 2 of 10 pts E8-23A (similar to) Question Help Top managers of Georgia Flooring are alarmed by their operating losses. They are considering dropping the laminate flooring product line. Company accountants have prepared the following analysis to help make this decision: (Click the icon to view the analysis.) Total fixed costs will not change if the company stops selling laminate flooring. Read the requirements Requirement 1. Prepare an incremental analysis to show whether Georgia Flooring should discontinue the laminate flooring product line. Will discontinuing laminate flooring add $36,000 to operating income? Explain. (Enter a "0" in an input field if there is no expected change as a result of discontinuing the laminate flooring product in this scenario.) X Incremental Analysis for Discontinuation Decision Total Data Table Contribution margin lost if laminate flooring product line is dropped Less: Fixed cost savings if laminate flooring product line is dropped A B D Operating income if laminate flooring is dropped 1 Georgia Flooring 2 Product Line Contribution Margin Income Statement Requirements 3 For the Year x 4 5 Product lines Laminate Wood flooring flooring Company Total $ 304,000 $ 128,000 $ 432,000 150,000 86,000 236,000 6 Sales revenue 1. Prepare an incremental analysis to show whether Georgia Flooring should discontinue the laminate flooring product line. Will discontinuing laminate flooring add $36,000 to operating income? Explain. 2. Assume that the company can avoid $40,000 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? 7 Less: Variable expenses 8 Contribution margin $ 154,000 $ 42,000 $ 196,000 9 Less fixed expenses: 10 Manufacturing 77,000 138,000 61,000 17,000 11 Marketing and administrative 50,000 67,000 Print Done Clear All 12 Operating income (loss) $ 27,000 $ (36,000) $ (9,000)