E25-13 Making dropping a
product decisions
E25-13 Top managers of Movie 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:
MOVIE STREET
Income
Statement
For
the Year Ended December 31, 2014
Total Blu-Ray Disc DVD Disc
Sales Revenue
$432,000
$305,000
$127,000
Variable Costs
246,000
150,000
96,000
Constribution Margin
186,000
155,000
31,000
Fixed Costs:
Manufacturing
128,000
71,000
57,000
Selling
and Administrative 67,000 52,000 15,000
Total Fixed Expenses 195,000 123,000 72.000
Operating Income (Loss) $(9,000) $32,000 $(41,000)
Total fixed costs will not change if the company
stops selling DVDs.
Requirements
1. Prepare
a differential analysis to show whether Movie Street should drop the DVD
product line.
2. Will
dropping DVDs add $41,000 to operating income? Explain.
TUTORIAL PREVIEW
Req. 1
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Movie Street
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Analysis of Dropping the DVD Disc Product Line
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Expected
decrease in revenues – Dropping DVD Disc
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($127,000)
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File name: E25-13 Top managers .xls File type: .xls PRICE: $6
