db 5.) Analysis mpa Sales revenue. Variable expenses. Contribution margin.. Total Blu-ray Discs DVDs $ 424,000 $ 305,000 $ 119,000 231,000 157,000 74,000 193,000 148,000 45,000 Fixed expenses: Manufacturing 116,000 69,000 47,000 91,000 56,000 35,000 Marketing and administrative nse erat Total fixed expenses 207,000 125,000 82,000 $ (14,000) $ 23,000 $ (37,000) Operating income (loss)... dis nop Print Done poll prepar Tim decision. Top managers of Video Street 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 (Click the icon to view the analysis.) Total fixed costs will not change if the company stops selling DVDs. Requirement 1. Prepare an incremental analysis to show whether Video Street should drop the DVD product line. Will dropping DVDs add to operating income? Explain. (Use parentheses or a minus sign to enter a decrease in operating income.) Video Street Analysis of Dropping the DVD Product Line Expected decrease in revenues Expected decrease in expenses: Variable expenses Fixed expenses Total expected decrease in expenses Top managers of Video Street 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 Requirement 1. Prepare an incremental analysis to show whether Video Street should drop the DVD product line. Will dropping DVDs add to operating income? Explain. (Use parentheses or a minus sign to enter a decrease in operating income.) Video Street Analysis of Dropping the DVD Product Line Expected decrease in revenues Expected decrease in expenses: Variable expenses Fixed expenses Total expected decrease in expenses Expected increase (decrease) in operating income Decision DVDs. It is to conclude that dropping DVDs would add to operating income. If Video Street drops the DVD product line, it incur Sin fixed expenses Decision allocated to DVDs DVDs it is to conclude that dropping DVDs would add to operating income. If Video Street drops the DVD product line, it incur S in fixed expenses Requirement 2. Assume that Video Street can avoid $35,000 of fixed expenses by dropping the DVD product line. (These costs are direct foxed costs of the DVD product line.) Prepare an incremental analysis to show whether Video Street should stop selling DVDs. (Use parentheses or a minus sign to enter a decrease in operating income.) Video Street Analysis of Dropping the DVD Product Line Expected decrease in revenues Expected decrease in expenses Variable expenses Fixed expenses Total expected decrease in expenses Expected increase (decrease) in operating income Decision because the product's incremental revenues its incremental costs Requirement 3. Now, assume that $72.000 of fixed costs assigned to DVDs are direct fixed costs and can be avoided if the company stops selling DVDs. However, marketing has concluded that Blu-ray disc sales would be adversely affected by discontinuing the DVD line. (Retailers want to buy both from the same supplier.) Blu-ray disc production and sales would decline 5% What should the company do? Prepare an incremental analysis. (Use parentheses or a minus sign to enter a decrease in operating income.) Video Street Analysis of Dropping the DVD Product Line Expected decrease in revenues Expected decrease in expenses Variable expenses Video Street Analysis of Dropping the DVD Product Line Expected decrease in revenues Expected decrease in expenses: Variable expenses Fixed expenses Total expected decrease in expenses Expected increase (decrease) in operating income Lost contribution margin on Blu-ray discs Net expected increase (decrease) in operating income Decision: Video Street should consider This would let Video Street its operating income.