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Top managers of Markus movies and games are alarmed by their operating losses. They are considering dropping the DVD product line. Company accountants have prepared

Top managers of Markus movies and games 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:

Movies and More

Income Statement

For the Year Ended December 31, 2016

Blu-ray

DVD

Total

Discs

Discs

Sales Revenue

$433,000

$306,000

$127,000

Variable Costs

251,000

153,000

98,000

Contribution Margin

182,000

153,000

29,000

Fixed Costs:

Manufacturing

132,000

79,000

53,000

Selling and Administrative

70,000

55,000

15,000

Total Fixed Expenses

202,000

134,000

68,000

Operating Income (Loss)

$(20,000)

$19,000

$(39,000)

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

Requirements

1.

Prepare a differential analysis to show whether Movies and games Movies and More should drop the DVD product line.

2.

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

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