Top managers of Video Avenue are alarmed by their operating losses. They are considering dropping the DVD product line. Company accountants have prepared the following analysis to help make this decision:
VIDEO AVENUE
Income Statement
For the Year Ended December 31, 2018

Total fixed costs will not change if the company stops selling DVDs.
Requirements
1. Prepare a differential analysis to show whether Video Avenue should drop the DVD product line.
2. Will dropping DVDs add $37,000 to operating income? Explain.

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Blu-ray Discs DVD Total Discs $ 129,000 $ 437,000 $ 308,000 Net Sales Revenue Variable Costs 250,000 154,000 96,000 Contribution Margin 187,000 154,000 33,000 Fixed Costs: Manufacturing 56,000 132,000 76,000 Selling and Administrative 65,000 51,000 14,000 Total Fixed Expenses 197,000 127,000 70,000 $ (10,000) $ 27,000 $ (37,000) Operating Income (Loss)