Top managers of Video Street 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:

Data Table:

Video Street
Income Statement
For the Year Ended December 31, 2016
		Blu-ray	DVD
	Total	Discs	Discs
Sales Revenue	$427,000	$302,000	$125,000
Variable Costs	252,000	159,000	93,000
Contribution Margin	175,000	143,000	32,000
Fixed Costs:
Manufacturing	135,000	77,000	58,000
Selling and Administrative	70,000	53,000	17,000
Total Fixed Expenses	205,000	130,000	75,000
Operating Income (Loss)	$(30,000)	$13,000	$(43,000)

Total fixed costs will not change if the company stops selling DVDs.

Requirements

1.	Prepare a differential analysis to show whether Video Street should drop the DVD product line.
2.	Will dropping DVDs add $43,000 to operating income? Explain.