Top managers of Movie Street are alarmed by their operating losses. They are considering dropping the VCR-tape product line. Company accountants have prepared the following analysis to help make this decision:

Total fixed costs will not change if the company stops selling VCR tapes.
Requirement
1. Prepare an incremental analysis to show whether Movie Street should drop the VCR-tape product line. Will dropping VCR tapes add $41,000 to operating income?Explain.

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MOVIE STREET Income Statement For the Year Ended December 31, 2012 DVD VCR Tapes $ 432,000 S 305,000 S 127,000 Total Discs Sales revenue Variable expenses 246,000 150,000 96,000 $ 186,000 s 155,000 S Contribution margin 31,000 Fixed expenses: 128,000 Manufacturing 71,000 57,000 Marketing and administrative 67,000 52,000 15,000 Total fixed expenses 195,000 123,000 72,000 (9,000) $ 32,000 $ Operating income (loss) (41,000)