losses. They are con untants have pre E8-23A Decide whether to discontinue a product line (Learning Objective 4) Top managers of Vermont Flooring are alarmed by their operating los. sidering dropping the laminate flooring product line. Company account pared the following analysis to help make this decision: Vermont Flooring Product Line Contribution Margin Income Statement For the Year Product lines 5 Laminate Wood flooring flooring Company Total OS 128,000 $ 434000 82,000 238.000 $ 306,000 $ 156,000 150,000 $ 128.00 82.000 46,000 S $ 100 7 Sales revenue 8 Less: Variable expenses 9 Contribution margin 10 Less fixed expenses: 11 Manufacturing 12 Marketing and administrative 13 Operating income (loss) 75,000 51.000 24,000 55.000 19.000 (28,000) S 120 70.000 n ow $ $ Total fixed costs will not change if the company stops selling laminate flooring. Requirements 1. Prepare an incremental analysis to show whether Vermont Flooring should discontinue the laminate flooring product line. Will discontinuing laminate flooring add $28,000 to operating income? Explain. 2. Assume that the company can avoid $32,000 of fixed expenses by discontinuing the laminate flooring product line (these costs are direct fixed costs of the lamina flooring product line). Prepare an incremental analysis to show whether the com should stop selling laminate flooring. 3. Now, assume that all of the fixed costs assigned to laminate flooring are direc costs and can be avoided if the company stops selling laminate flooring. Hower marketing has concluded that wood flooring sales would be adversely affecte discontinuing the laminate flooring line (retailers want to buy both from these plier). Wood flooring production and sales would decline 10%. What should the pany do? both from the same sup