Top managers of Rhode Island 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 Rhode Island Flooring should discontinue the laminate flooring product line. Wil discontinuing laminate flooring add $22.000 to operating income? Explain. (Enter a *o* in an input field 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 sominate flooring product line is dropped Less Fixed cost savings if laminate flooring product line is dropped Operating income If laminate flooring is dropped mi 1 Data Table -X line. Wid lew B ot 1 3 Rhode Island Flooring Product Line Contribution Margin Income Statement 2 3 For the Year are Coop line. Will he lamir 4 tal A 5 Product lines Laminate Wood flooring flooring Company Total $ 301,000 $ 134,000 S 435,000 155,000 88,000 243,000 146,000 $ 46,000 $ 192,000 ost 6 Sales revenue ings 7 Less: Variable expenses B. Contribution margin 9 Less fixed expenses: st or Print Done - X i Data Table 3 4 For the Year Product lines Laminate Wood flooring flooring Company Total $ 301,000 $ 134,000 $ 435,000 155,000 88,000 243,000 5 $ 6 Sales revenue $ 146,000 $ 46,000 $ 192,000 7 Less: Variable expenses 8 Contribution margin 9 Less fixed expenses: 10 Manufacturing 71,000 59,000 130,000 55,000 9,000 64,000 11 Marketing and administrative $ 20,000 $ (22,000) $ (2,000) 12 Operating income (loss) Print Done -X - 0 Requirements His ite 1. Prepare an incremental analysis to show whether Rhode Island Flooring should discontinue the laminate flooring product line. Will discontinuing laminate flooring add $22,000 to operating income? Explain. 2. Assume that the company can avoid S27,000 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 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
