3. Top managers of Rhode Island 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 Rhode Island Flooring should discontinue the laminate flooring product line. Will discontinuing laminate flooring add $26,000 to operating income? Explain. (Enter a "o" in an input field 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 it laminate flooring product line is dropped Losa: Fixed cost savings it taminate flooring product line is dropped Operating income (1) Jif laminate flooring is dropped Decision (2) it is (3) to conclude that dropping laminate flooring would add $26,000 to operating income. If the company discontinues the laminate flooring incur fixed expenses allocated to laminate flooring product line, it (4) Requirement 2. Assume that the company can avoid $30,000 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, (Enter a "' in an input field 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 it laminate flooring product line is dropped Less: Fixed cost savings if laminate flooring product line is dropped Operating income (5) it laminate flooring is dropped Decision (6) because, assuming $30,000 of fixed oxpenses attributable to the laminate flooring product line can be avoided, the loss of 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 "O* in an input field If there is no expected change as a result of discontinuing the laminate flooring line in this scenario.) Incremental Analysis for Discontinuation Decision Total 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 Operating income if laminate flooring is dropped D 1 Decision: (9) because, assuming that all fixed costs assigned to the laminate flooring product line can be avoided but that wood flooring production and sales would decline 10%, the loss of contribution margin (10) the fixed cost savings. 1: Data Table A Rhode Island Flooring 2 Product Line Contribution Margin Income Statement 3 For the Year Product lines Laminate 5 Wood flooring flooring Company Total 6 Sales revenue $ 308,000 $ 120,000 $ 428.000 7 Less: Variable expenses 158,000 74,000 232,000 8 Contribution margin $ 150,000 $ 46,000 $ 196,000 9 Less fixed expenses: 10 Manufacturing 73.000 59.000 132.000 11 Marketing and administrative 58,000 13.000 71.000 12 Operating income (loss) $ 19.000 $ (26.000) $ (7.000) 2: Requirements 1. Prepare an incremental analysis to show whether Rhode Island Flooring should discontinue the laminate flooring product line. Will discontinuing laminate flooring add $26,000 to operating income? Explain. 2. Assume that the company can avoid $30,000 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? 5) (1) O O gained Olost (2) Drop laminate flooring product line. Do not drop laminate flooring product line. (3) correct incorrect (4) O will still O would not Olost gained (6) Drop the laminate flooring product line Do not drop the laminate flooring product line mis now less than will still exceed (8) O gained lost (9) (10) Do not drop the laminate flooring product line Drop the laminate flooring product line is now less than will still exceed