Top managers of Maine Flooring are alarmed by their operating losses. They are considering discontinuing the laminate flooring product line. Company accountants have prepared the following analysis to help make this decision:

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?

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Maine Flooring Product Line Contribution Margin Income Statement For the Year Ended December 31 Product lines Wood flooring 303,000 154,000 149,000 $ Laminate flooring 120,000 $ 80,000 40,000 $ Company Total 423,000 234,000 189,000 Sales revenue Less: Variable expenses Contribution margin Less fixed expenses: Manufacturing Marketing and administrative Operating income (loss) 78,000 52,000 19,000 $ 49,000 15,000 (24,000) $ 127,000 67,000 (5,000)