Top managers of Best Video are alarmed by their operating losses. They are considering dropping the DVD product line. Company accountant have prepared the following analysis to help make this decision:

Best Video

Income statement

For the Year Ended December 31, 2018

TOTAL Blu-ray Discs DVD Discs

Net Sales Revenue	$ 425,000	302,000	123,000
Variable Costs	244,000	150,000	94,000
Contribution Margin	181,000	152,000	29,000
Fixed Costs:
Manufacturing	131,000	73,000	58,000
Selling and Administrative	65,000	55,000	10,000
Total Fixed Expenses	196,000	128,000	68,000
Operating income	$ (15,000)	24,000	(39,000)

Requirement 1. Prepare a differential analysis to show whether Best video should drop the DVD product line.

Begin by preparing a differential analysis to show whether Best video should drop the DVDs product line.

Expected decrease in revenues-Dropping DVDs __________

Expected decrease in costs-Dropping DVDs __________

Expected ______a__ in operating income ___________

Decision _____b_____

Requirement 2. Will dropping DVDs add $39,000 to operating income? Explain.

It is __c___ to conclude that dropping the DVD product line would add $39,000 to operating income. If the company drops the DVD product line, it ___d____ incur fixed expenses allocated to the DVDs.

a. decrease or increase

b. Do not drop DVDs or Drop DVDs

c. correct or incorrect

d. will still or would not