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Data Table Pennsylvania Flooring Product Line Contribution Margin Income Statement For the Year Product lines Sales revenue Wood flooring Laminate flooring Company Total 303,000 $ 120,000 $ 423,000 159,000 76,000 235,000 144,000 $ 44,000 $ 188,000 Less: Variable expenses Contribution margin Less fixed expenses: Manufacturing Marketing and administrative 73,000 52,000 59,000 9,000 132,000 61,000 $ 19,000 $ (5,000) Operating income (loss) (24,000) $ Print Done Top managers of Pennsylvania Flooring are alarmed by their operating losses. They are considering cropping the laminate flooring product line. Company accountants have prepared the following analysis to help make this decision: BClick 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 incremental analysis to show whether Pennsylvania Flooring should discontinue the laminate flooring product line. Will discontinuing laminate flooring add $24.000 to operating income? Explain. (Enter a "' in an input box if there is no expected change as a result of discontinuing the laminate flooring product in this scenario.) Incremental Analysis for Discontinuation Decision Total Contribution margin lost if laminate flooring product line is dropped $ 44.000 Less: Fixed cost savings if laminate flooring product line is dropped 0 lost $ 44.000 Operating income if laminate flooring is dropped Decision: Do not drop laminate flooring product line. It is incorrect to conclude that dropping laminate flooring would add $24,000 to operating income. If the company discontinues the laminate flooring product line, it will still incur fixed expenses allocated to laminate flooring Requirement 2. Assume that the company can avoid $27,000 of fixed expenses by discontinuing the larinate 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. (Enter a '0" in an input box if there is no expected change as a result of discontinuing the laminate flooring in this scenario.) Incremental Analysis for Discontinuation Decision Total Contribution margin lost if laminate flooring product line is dropped 44,000 Less: Fixed cost savings if laminate flooring product line is dropped 27,000 17,000 Operating income lost if laminate flooring is dropped $ Decision: Do not drop the laminate flooring product line because, assuming $27,000 of fixed expenses attributable to the laminate flooring product line can be avoided, the loss of contribution margin will still exceed the fixed cost savings. Requirement 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? Prepare an incremental analysis. (Enter a "0" in an input box if there is no expected change as a result of discontinuing the laminate flooring line in this scenario.) Total 44,000 Incremental Analysis for Discontinuation Decision Laminate flooring contribution margin lost if laminate flooring product line is dropped Wood flooring contribution margin lost if laminate flooring product line is dropped Less: Fixed cost savings if laminate flooring product line is dropped 14400 Operating income if laminate flooring is dropped