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. E: (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: Analysis Variable expenses Fixed expenses DVDs Total expected decrease in expenses Sales revenue $ Total Blu-ray Discs 420,000 $ 299,000 $ 230,000 154,000 Expected increase (decrease) in operating income 121,000 76,000 Variable expenses.. 190,000 Contribution margin 145,000 45,000 Fixed expenses: X Requirements Manufacturing Marketing and administrative 129,000 84,000 76,000 50,000 53,000 34,000 213,000 Total fixed expenses 126,000 87,000 $ (23,000) $ 19,000 $ (42,000) Operating income (loss). 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 $34,000 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 $82,000 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 5%. What should the company do? Print Done Print Done