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.