Top managers of Movies and MoreMovies and More are alarmed by their operating lo
ID: 1225776 • Letter: T
Question
Top managers of Movies and MoreMovies 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:
Top managers of Movies 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 1. Prepare a differential analysis to show whether Movies and More should drop the DVD product line 2. Will dropping DVDs add $33,000 to operating income? Explain. Requirement 1. Prepare a differential analysis to show whether Movies and More should drop the DVD product line. Begin by preparing a differential analysis to show whether Movies and More should drop the DVDs product line. (Enter decreases to profits with a parentheses or minus sign.) Expected decrease in revenues-Dropping DVDs Expected decrease in expensesDropping DVDs Expected in operating income Decision: Requirement 2. Will dropping DVDs add $33,000 to operating income? Explain. | to conclude that dropping the DVD product line would add $33,000 to operating income. If the company drops the DVD product line, it I incur fixed expenses allocated to the DVDs.Explanation / Answer
Requirement (1) :-
Differential Analysis
Expected Decrease in Revenues
Expected Decrease in Expenses (Note 1)
(-) 127000
95000
(Note 1):- Dropping the DVD Product Line will result in saving in the Variable Costs amounting to $ 95000. Fixed Costs will remain unaffected i.e., the company will have to bear the fixed costs even after dropping the DVDs Product Line.
Conclusion:- Movies and More Company should not drop the DVD Product Line because dropping the DVD Product Line will result in reduction in Operating income by $ 32000. In other words, Operating income decreases by $ 32000 as a result of dropping the DVD Product Line. Therefore, the DVD Product Line should not be dropped.
Requirement (2) :-
Answer:- Dropping DVDs will not add $ 33000 to the Operating income because Fixed Cost remains unaffected i.e., the company will have to bear the fixed costs even after dropping the DVDs Product Line.
Particulars Amount (In Dollars)Expected Decrease in Revenues
Expected Decrease in Expenses (Note 1)
(-) 127000
95000
Expected Decrease in Operating Income (-) 32000Related Questions
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