Stretch Inc. sells both yoga pants and yoga mats.Managers for Stretch are concerned about their operating losses.They are considering dropping their yoga mat product line. Operating income by product line and in total is shown below. 1) new operating income analysis assuming Stretch will only sell yoga pants. 2) Then explain why Stretch should drop or not drop the yoga mat product line based on your analysis. All fixed costs are allocated fixed costs.

Stretch Inc.

Income Statement

For year ended December 31, 2020

Total Yoga Pants Yoga Mats

Sales Revenue $425,000 $299,000 $126,000

Sales Revenue $425,000 $299,000 $126,000

Contribution Margin - - -

Fixed Costs:

Fixed Manufacturing 127,000 62,000 65,000

Selling & Administrative 64,000 46,000 18,000

Operating Income (191,000) (108,000) (83,000)

Stretch Inc.

Income Statement

For year ended December 31, 2020

Total

Sales Revenue

Variable Costs

Contribution Margin

Fixed Costs:

Fixed Manufacturing

Selling & Administrative

Operating Income

Explanation: