E25-13 Making dropping a product decisions Top managers of Movie 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 decision: Learning Objective 2 2. Desired profit $27,160 Learning Objective 3 1. $(31,000) Selling and Administrative Total Fixed Expenses Operating Income (Loss) Blu-ray Discs DVD Total Discs $ (41,000) 72,000 15,000 MOVIE STREET Income Statement For the Year Ended December 31, 2014 $ 32,000 123,000 52,000 $ (9,000) 128,000 71,000 57,000 195,000 67,000 Contribution Margin Sales Revenue Variable Costs Manufacturing Fixed Costs: 31,000 96,000 155,000 150,000 186,000 246,000 $ 432,000 $ 305,000 $ 127,000 Total fixed costs will not change if the company stops selling DVDs Requirements 1. Prepare a differential analysis to show whether Movie Street should drop the DVD product line. 2. Will dropping DVDs add $41,000 to operating income? Explain