Managerial Accounting: E25-13 Top managers of Best Video are alarmed by their operating

Managerial Accounting
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:
BEST VIDEO
Income Statement
For the Year Ended December 31, 2016
Total Blu-ray Discs DVD Discs
Sales Revenue 432,000 309,000 123,000
Variable Costs 240,000 150,000 90,000
Contribution Margin 192,000 159,000 33,000
Fixed Costs:
Manufacturing 134,000 75,000 59,000
Selling and Administrative 69,000 52,000 17,000
Total Fixed Expenses 203,000 127,000 76,000
Operating Income (Loss) (11,000) 32,000 (43,000)
Total fixed costs will not change if the company stops selling DVDs.

Requirements
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.
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