Top managers of Movie Plus 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. (Click the icon to view the analysis.) Total fixed costs will not change if the company stops selling DVDs. Requirements Requirement 1. Prepare an incremental analysis to show whether Movie Plus 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.) Movie Plus 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 Decision: . It is to conclude that dropping DVDs would add to operating income. If the company drops the DVD product line, it incur $ in fixed expenses allocated to DVDs. Requirement 2. Assume that Movie Plus can avoid $33,000 of fixed expenses by dropping the DVD product line. (These costs are direct fixed costs of the DVD product line.) Prepare an incremental analysis to show whether Movie Plus should stop selling DVDs. (Use parentheses or a minus sign to enter a decrease in operating income.) Movie Plus 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 Decision: because the product's incremental revenues its incremental costs. Requirement 3. Now, assume that all $86,000 of fixed costs assigned to DVDs are direct fixed costs and can be avoided if the company stops selling DVDs. However, marketing has concluded that Blu-ray disc sales would be adversely affected by discontinuing the DVD line. (Retailers want to buy both from the same supplier.) Blu-ray disc production and sales would decline 10%. What should the company do? Prepare an incremental analysis. (Use parentheses or a minus sign to enter a decrease in operating income.) Movie Plus Analysis of Dropping the DVD Product Line Expected decrease revenues Expected decrease in expenses: Variable expenses Fixed expenses Total expected decrease in expenses Expected increase (decrease) in operating income Lost contribution margin on Blu-ray discs Net expected increase (decrease) in operating income Decision: Movie Plus should consider This would let Movie Plus its operating income. Analysis Sales revenue... Variable expenses Contribution margin Blu-ray Total 441,000 $ Discs DVDs 308,000 $ 133,000 242,000 152,000 90,000 199,000 156,000 43,000 Fixed expenses: Manufacturing 123,000 70,000 53,000 Marketing and administrative 92,000 59,000 33,000 215,000 129,000 Total fixed expenses 86,000 (16,000) $ 27,000 $ (43,000) Operating income (loss).. Requirements 1. Prepare an incremental analysis to show whether Movie Plus should drop the DVD product line. Will dropping DVDs add to operating income? Explain. 2. Assume that Movie Plus can avoid $33,000 of fixed expenses by dropping the DVD product line. (These costs are direct fixed costs of the DVD product line.) Prepare an incremental analysis to show whether Movie Plus should stop selling DVDs. 3. Now, assume that all $86,000 of fixed costs assigned to DVDs are direct fixed costs and can be avoided if the company stops selling DVDs. However, marketing has concluded that Blu-ray disc sales would be adversely affected by discontinuing the DVD line. (Retailers want to buy both from the same supplier.) Blu-ray disc production and sales would decline 10%. What should the company do