requirement 3 needed.

A B D 1 California Flooring Product Line Contribution Margin Income Statement N 3 For the Year 4 Product lines Wood Laminate flooring flooring Company Total 5 6 Sales revenue $ 302,000 $ 136,000 $ 438,000 154,000 88,000 242,000 $ 148,000 $ 48,000 $ 196,000 7 Less: Variable expenses 8 Contribution margin 9 Less fixed expenses: 10 Manufacturing Marketing and 11 administrative 71,000 59,000 130,000 57,000 17,000 74,000 $ 12 Operating income (loss) 20,000 $ (28,000) $ (8,000) Top managers of California 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 Total Requirement 1. Prepare an incremental analysis to show whether California Flooring should discontinue the laminate flooring product line. Will discontinuing laminate flooring add $28,000 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.) Incremental Analysis for Discontinuation Decision Contribution margin lost if laminate flooring product line is dropped 48,000 0 Less: Fixed cost savings if laminate flooring product line is dropped $ 48,000 Operating income lost if laminate flooring is dropped Decision: Do not drop laminate flooring product line. It is incorrect to conclude that dropping laminate flooring would add $28,000 to operating income. If the company discontinues the laminate flooring product line, it will still incur fixed expenses allocated to laminate flooring Requirement 2. Assume that the company can avoid $29,000 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 fost if laminate flooring product line is dropped 48,000 29,000 Less: Fixed cost savings if laminate flooring product line is dropped lost Operating income 19,000 if laminate flooring is dropped Decision: Do not drop the laminate flooring product line because, assuming $29,000 of fixed expenses attributable to the laminate flooring product line can be avoided, the loss of contribution margin will still exceed 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 S $ Top managers of California 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 Operating income lost 48,000 if laminate flooring is dropped Decision: Do not drop laminate flooring product line It is incorrect to conclude that dropping laminate flooring would add $28,000 to operating income. If the company discontinues the laminate flooring product line, it will still incur fixed expenses allocated to laminate flooring, Requirement 2. Assume that the company can avoid $29,000 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 *o* 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 $ 48,000 Less: Fixed cost savings it laminate flooring product line is dropped 29,000 Operating income lost if laminate flooring is dropped $ 19,000 Decision: Do not drop the laminate flooring product line because, assuming $29,000 of fixed expenses attributable to the laminate flooring product line can be avoided, the loss of contribution margin will still exceed the fixed cost savings. Requirement 3. Now, assume that all of the fixed costs assigned to larninate 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 "O 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 Laminate flooring contribution margin lost it laminate flooring product line is dropped 48,000 Wood flooring contribution margin lost if laminate flooring product line is dropped Less: Fixed cost savings if laminate flooring product line is dropped 76,000 Operating income if laminate flooring is dropped (42800) Total $ 14,800 gained