Question
Top managers of Movies and More are alarmed by their operating losses. They are considering dropping the DVD product line. Company accountants have prepared the
Top managers of
Movies and More
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:
Entertainment Plus
Income Statement
For the Year Ended December 31, 2024
Total
Blu-ray Discs
DVD Discs
Net Sales Revenue
$424,000
$302,000
$122,000
Variable Costs
259,000
159,000
100,000
Contribution Margin
165,000
143,000
22,000
Fixed Costs:
Manufacturing
120,000
69,000
51,000
Selling and Administrative
71,000
53,000
18,000
Total Fixed Costs
191,000
122,000
69,000
Operating Income (Loss)
$(26,000)
$21,000
$(47,000)
(Click the icon to view the analysis.)
Assume that
Movies and More
can avoid
$36,000
of fixed costs by dropping the DVD product line (these costs are direct fixed costs of the DVD product line). Prepare a differential analysis to show whether
Movies and More
should stop selling DVDs. (Enter decreases to revenues with a parentheses or minus sign.)
Expected decrease in revenues | |||||||
Expected decrease in costs: | |||||||
Variable costs | |||||||
Fixed costs | |||||||
Expected decrease in total costs | |||||||
Expected | in operating income |
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