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iPad 10:21 AM 88% D chrome for Mobil × ' D chrome for Mobil × ' D Chrome for Mobil ×Course Material f × Grano, D C httpsviewer.gcu.edu/PMHO9W 109 % 506 of 778 1418 chapter 25 Learning Objective 3 E25-13 Making dropping a product decisions Top managers of Best Video 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: 1. $(33,000) (Requirement 1 only) BEST VIDEO Income Statement For the Year Ended December 31, 2016 DVD Discs Total 5 432,000 240,000 192,000 Discs Sales Revenue Variable Costs Contibution Margin Foxed Costs 309,000 123,000 90,000 33,000 150,000 159,000 Selling and Administrative Total Fxed Expenses Operating Income (Loss) 59,000 17,000 76,000 S (11,000) 32,000 (43,000) 34,000 69,000 203,000 75,000 52,000 127,000 Total fixed costs will not change if the company stops selling DVDs. 1. Prepare a differential analysis to show whether Best Video should drop the DVD product line. 2. Will dropping DVDs add $43,000 to operating income? Explain.Explanation / Answer
answer 1.
diffrential analysis:
as the total fixed cost does not change by stopping sale of DVD so there will be no effect of fixed cost on decision making. hence company must not stop selling DVD as it contributed $33000 towards the contribution of company. AS long as the DVD segment is giving positive contribution company should not stop its sale.
Particular sells dvd not sells dvd change sale 432000 309000 (123000) variable cost 240000 150000 90000 contribution 192000 159000 (33000)Related Questions
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