Top managers of Ohio Flooring are alarmed by their operating losses. They are considering dropping the laminate flooring 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 laminate flooring Read the requirements Requirement 1. Prepare an incremental analysis to show whether Ohio Flooring should discontinue the laminate flooring product line. Will discontinuing laminate flooring add $35,000 to operating income? Explain. Discontinuing laminate flooring will cause operating income to Decision: Do not drop laminate flooring product line. It is correct to conclude that dropping laminate flooring would gain to operating income. If the company discontinues the laminate flooring product line, it will still incur fixed expenses allocated lose Jooring Requirement 2. Assume that the company can avoid $40,000 of us 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 (Enter a "O" In an input field if there is no expected change as a result of discontinuing the laminate flooring in this scenario) Discontinuing laminate flooring and avoiding $40,000 of fixed expenses will cause operating income to Data table B D A Ohio Flooring 1 2 3 Product Line Contribution Margin Income Statement For the Year Product lines 4 5 Laminate Wood flooring flooring Company Total $ 306,000 $ 122,000 $ 428,000 153,000 76,000 229,000 6 Sales revenue 7 Less: Variable expenses 8 Contribution margin $ 153,000 $ 46,000 $ 199,000 9 Less fixed expenses: 10 Manufacturing 77,000 51,000 62,000 19,000 139,000 70,000 11 Marketing and administrative $ 25,000 $ (35,000) $ (10,000) 12 Operating income (loss) Print Done Requirements 1. Prepare an incremental analysis to show whether Ohio Flooring should discontinue the laminate flooring product line. Will discontinuing laminate flooring add $35,000 to operating income? Explain. 2. Assume that the company can avoid $40,000 of fixed expenses 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 avolded 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? Top managers of Ohio Flooring are alarmed by their operating losses. They are considering dropping the laminate flooring 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 laminate flooring. Read the requirements Requirement 2. Assume that the company can avoid $40,000 of fixed expenses 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. (Enter a "O" in an input field if there is no expected change as a result of discontinuing the laminate flooring in this scenario.) Discontinuing laminate flooring and avoiding $40,000 of fixed expenses, will cause operating income to Decision because, assuming $40,000 of fixed expenses attributable to the laminate flooring product line can be avoided, the loss of contribution margin the fixed cost savings. Requirement 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? Prepare an incremental analysis. (Enter a "0" in an input field if there is no expected change as a result of discontinuing the laminate flooring line in this scenario.) Top managers of Ohio Flooring are alarmed by their operating losses. They are considering dropping the laminate flooring 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 laminate flooring Read the requirements GLEDE WYMIVITY Vw, I HAVU MAPUMUL Decision: because, assuming $40,000 of fixed expenses attributable to the laminate flooring product line can be avoided, the loss of contribution margin the fixed cost savings Requirement 3. Now, assume that all of the fixed costs assigned to laminate flooring are direct foxed 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 subplier). Wood flooring production and sales would decline 10%. What should the company do? Prepare an incremental analysis. (Enter a "0" in an input field if there is no expected change as a result of discontinuing the laminate flooring line in this scenario.) Discontinuing laminate flooring and avoiding all fixed expenses, will cause operating income to Decision because, assuming that all fixed costs assigned to the laminate flooring product line can be avoided but that wood flooring production and sales would decline 10%, the loss of contribution margin the fixed cost savings
