PART B Top managers at Video avenue are alarmed by their operating losses. They are considering dropping the ABC product line. Company accountants have prepared the following analysis to help make the decision TOTAL XYZ PRODUCT ABC PRODUCT Sales $420,000 $300,000 $120,000 Variable expenses 230,000 150,000 80,000 Contribution margin 190.000 150,000 40,000 Fixed expenses Manufacturing 125,000 70.000 $5,000 Administrative 70,000 55,000 15,000 Total fixed expenses 195,000 125,000 70,000 Operating income{loss) ($5,000) $25.000 (530,000) Required: 1. Assume total fixed cost will not change if the company stops making and selling ABC products. Prepare an analysis to show whether the company should drop product ABC. Should the company drop product ABC? What effect will this have on the current loss? 2. Now assume the company can avoid $30,000 of the fixed expenses by dropping product ABC (these are direct fixed costs of the product line). Prepare an analysis to show whether the company should drop product ABC. Should the company drop product ABC? What effect will this have on the current loss? 3. Now assume that all of the $70,000 of fixed costs assigned to product ABC can be avoided if the product ABC is dropped. However, the marketing department has concluded that product XYZ sales would be adversely affect and decrease by 10%. Prepare an analysis to show whether the company should drop product ABC. Should the company drop product ABC? What effect will this have on the current loss