Answer:
a)
Blue-ray discs Blue-ray discs Differential
and DVD discs only amount
Sales Revenue $432,000 $305,000 $127,000
Variable Costs <u>($246,000)</u> <u>($150,000)</u> <u>($96,000</u>)
Contribution M. $186,000 $155,000 $31,000
Fixed Costs:
- Manufacturing ($128,000) ($128,000) $0
- S&A expenses <u>($67,000)</u> <u>($67,000)</u> <u>$0</u>
Operating Income ($9000) ($40,000) $31,000
b) Will dropping DVDs add $41,000 to the operating income?
No, dropping the DVDs product line will decrease operating income by $31,000, resulting in a total loss of $40,000. Even though the DVDs product line by itself is not profitable, it absorbs a large percentage of the fixed costs and if you get rid of it, all the fixed costs will be absorbed by the Blue-rays product line.
