Top managers of Videos 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. (Click the icon to view the analysis.) Total fixed costs will not change if the company stops selling DVDs. Requirements Requirement 1. Prepare an incremental analysis to show whether Videos and More should drop the DVD product line. Will dropping DVDs add to operating income? Explain. (Use parentheses or a minus sign to enter a decrease in operating income.) Videos and More Analysis of Dropping the DVD Product Line Expected decrease in revenues Expected decrease in expenses: Variable expenses i Analysis Fixed expenses Total expected decrease in expenses Expected increase (decrease) in operating income Decision: DVDs. It is Sales revenue.. Variable expenses to conclude that dropping DVDs would add to operating income. If Videos and More drops Contribution margin Requirement 2. Assume that Videos and More can avoid $32,000 of fixed expenses by dropping the DVD product line. (These costs are Videos and More should stop selling DVDs. (Use parentheses or a minus sign to enter a decrease in operating income.) Fixed expenses: Videos and More Analysis of Dropping the DVD Product Line Expected decrease in revenues Expected decrease in expenses: Variable expenses Enter any number in the edit fields and then continue to the next question. Blu-ray Total Discs DVDs $ 428,000 $ 240,000 302,000 $ 126,000 158,000 82,000 188,000 144,000 44,000 Manufacturing 130,000 73,000 57,000 Marketing and administrative Total fixed expenses Operating income (loss)... 83,000 51,000 32,000 213,000 124,000 89,000 $ (25,000) $ 20,000 $ (45,000) Print Done Decision: DVDs. It is to conclude that dropping DVDs would add to operating income. If Videos and More drops the DVD product line, it incur $ in fixed expenses allocated to DVDs. Requirement 2. Assume that Videos and More can avoid $32,000 of fixed expenses by dropping the DVD product line. (These costs are direct fixed costs of the DVD product line.) Prepare an incremental analysis to show whether Videos and More should stop selling DVDs. (Use parentheses or a minus sign to enter a decrease in operating income.) Videos and More Analysis of Dropping the DVD Product Line Expected decrease in revenues Expected decrease in expenses: Variable expenses Fixed expenses Total expected decrease in expenses Expected increase (decrease) in operating income Decision: because the product's incremental revenues its incremental costs