Chapter 26, Problem 1CPP on Chegg study workbook solutions for Horngren's Managerial Accounting (12th Edition)

Part 2.

The division manager of Division B received the following operating income data for the past year:

DIVISION B OF DILLARD, INC

Income Statement		For the Year Ended DEC 31, 2018
	Product	Line
	T205	B179	Total
Net Sales Revenue	$310,000	$360,000	$670,000
Costs of Goods Sold:
Variable	31,000	44,000	75,000
Fixed	275,000	67,000	342,000
Total Cost of Goods Sold	306,000	111,000	417,000
Gross Profit	4,000	249,000	253,000
Selling and Admin. Expenses
Variable	68,000	80,000	148,000
Fixed	47,000	27,000	74,000
Total Selling and Admin. Expenses	115,000	107,000	222,000
Operating Income (Loss)	$(111,000)	$142,000	$ 31,000

The manager of the division is surprised that the T205 product line is not profitable. The division accountant estimates that dropping the T205 product line will decrease fixed cost of goods sold by $75,000 and decrease fixed selling and administrative expenses by $10,000.

So I need to figure out

A: Prepare a differential analysis to show whether Division B should drop the T205 product line.

B: What is your recommendation to the manager of Division B?