Top managers of New York Flooring are alarmed by their operating losses. They are considerign dropping the laminate flooring product line. Company accountants have prepared the following analysis to help make this decision:

New York Flooring

Product Line Contribution Margin Income Statement

For the Year

Product lines

Wood flooring Laminate flooring Company Total

Sales revenue

$303,000 $130,000 $433,000

Less: Variable expenses

159,000 88,000 247,000

Contribution margin

$144,000 $42,000 $186,000

Less fixed expenses:

Manufacturing

75,000 53,000 128,000

Marketing and administrative

50,000 17,000 67,000

Operating income (loss)

$19,000 $(28,000) $(9,000)

Total fixed costs will not change if the company stops selling laminate flooring

Requirement:

1: Prepare an incremental analysis to show whether new york flooring should discontinue to laminate flooring product line will discontinue laminate flooring add $2800 to operating income? Explain.

2. Assume that the company can avoid $29,000 of fixed expense by discontinuing the laminate flooring product line(these costs are direct fixed costs of the laminate flooring product line). Prepare an incremental analysis to show whether the company should stop selling laminate flooring.

3. Now, assume that all of the fixed costs assigned to laminate flooring are direct fixed costs and can be avoided if the company stops selling laminate flooring. However, marketing has concluded that wood flooring sales would be adversely affected by discontinuing the laminate flooring line (retailers want to buy both from the same supplier). Wood flooring production and sales would decline 10%. What should the company do?

Requirement 1: Prepare an incremental analysis to show whether New York FlooringNew York Flooring

should discontinue the laminate flooring product line. Will discontinuing laminate flooring add $28,000

to operating income? Explain. (Enter a "0" in an input box if there is no expected change as a result of discontinuing the laminate flooring product in this scenario.)

Incremental Analysis for Discontinuation Decision			Total
Contribution margin lost if laminate flooring product line is dropped ?? Less: Fixed cost savings if laminate flooring product line is dropped ? Operating income ______ if laminate flooring is dropped ??