Top managers of

Best Video

are alarmed by their operating losses. They are considering dropping the DVD product line. Company accountants have prepared the following analysis to help make this decision.

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Total fixed costs will not change if the company stops selling DVDs.

Requirements

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Requirement 1. Prepare an incremental analysis to show whether

Best Video

should drop the DVD product line. Will dropping DVDs add to operating income? Explain. (Use parentheses or a minus sign to enter a decrease in operating income.)

Best Video
Analysis of Dropping the DVD Product Line
	Expected decrease in revenues
	Expected decrease in expenses:
	Variable expenses
	Fixed expenses
	Total expected decrease in expenses
	Expected increase (decrease) in operating income

		Total	Blu-ray Discs	DVDs
	Sales revenue. . . . . . . . . . . . . . . .	$426,000	$302,000	$124,000
	Variable expenses. . . . . . . . . . . . . . .	245,000	159,000	86,000
	Contribution margin. . . . . . . . . . . . .	181,000	143,000	38,000
	Fixed expenses:
	Manufacturing. . . . . . . . . . . .	138,000	76,000	62,000
	Marketing and administrative	78,000	51,000	27,000
	Total fixed expenses. . . . . . .	216,000	127,000	89,000
	Operating income (loss). . . . . . . . . .	$(35,000)	$16,000	$(51,000)