LO A B D 1 Alaska Flooring 2 Product Line Contribution Margin Income Statement 3 For the Year 4 Product lines Laminate Wood flooring flooring Company Total 6 Sales revenue $ 302,000 $ 136,000 $ 438,000 7 Less: Variable expenses 151,000 86,000 237,000 8 Contribution margin 151,000 $ 50,000 $ 201,000 9 Less fixed expenses: 10 Manufacturing 75,000 53,000 128,000 11 Marketing and administrative 55,000 19,000 74,000 12 Operating income (loss) 21,000 $ (22,000) $ (1,000) Top managers of Alaska 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 Alaska Flooring should discontinue the laminate flooring product line. Will discontinuing laminate flooring add $22,000 to operating income? Explain. (Enter a "0" in an input field if there is no expected change as a result of discontinuing the laminate flooring product in this scenario.) Total Incremental Analysis for Discontinuation Decision 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 Decision: It is to conclude that dropping laminate flooring would add $22,000 to operating income. If the company discontinues the laminate flooring product line, it Vincur fixed expenses allocated to laminate flooring. Requirement 2. Assume that the company can avoid $23,000 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 "0" 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 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 Decision: because, assuming $23,000 of fixed expenses attributable to the laminate flooring product line can be avoided, the loss of contribution margin the fixed cost savings. 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 "0" 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 Decision: 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 the fixed cost savings