Top managers of Ohio FlooringOhio Flooring are alarmed by their operating losses
ID: 2553807 • Letter: T
Question
Top managers of
Ohio FlooringOhio Flooring
are alarmed by their operating losses. They are considering dropping the laminate flooring product line. Company accountants have prepared the following analysis to help make this? decision:
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Total fixed costs will not change if the company stops selling laminate flooring.
Read the
requirements
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Requirement 1. Prepare an incremental analysis to show whether
Ohio FlooringOhio Flooring
should discontinue the laminate flooring product line. Will discontinuing laminate flooring add
$ 20 comma 000$20,000
to operating? income? Explain. ?(Enter a? "0" in an input box if there is no expected change as a result of discontinuing the laminate flooring product in this? scenario.)
Incremental Analysis for Discontinuation Decision
Total
Contribution margin lost if laminate flooring product line is dropped
Less: Fixed cost savings if laminate flooring product line is dropped
Operating income
if laminate flooring is dropped
Ohio Flooring
Product Line Contribution Margin Income Statement
For the Year
Product lines
Wood flooring
Laminate flooring
Company Total
Sales revenue
$307,000
$126,000
$433,000
Less: Variable expenses
159,000
78,000
237,000
Contribution margin
$148,000
$48,000
$196,000
Less fixed expenses:
Manufacturing
79,000
59,000
138,000
Marketing and administrative
53,000
9,000
62,000
Operating income (loss)
$16,000
$(20,000)
$(4,000)
Explanation / Answer
Answer:
1
Incremental Analysis for Discontinuation Decision
Total
Contribution margin lost if laminate
flooring product line is dropped
48000
Less: Fixed cost savings if laminate flooring product line is dropped
0
Operating income lost if laminate flooring is dropped
48000
2
Do not laminate flooring product line
Explanation
Company should not drop laminate flooring product line because id company dropping of this line will result in the cost of operating income by $48000
Incremental Analysis for Discontinuation Decision
Total
Contribution margin lost if laminate
flooring product line is dropped
48000
Less: Fixed cost savings if laminate flooring product line is dropped
0
Operating income lost if laminate flooring is dropped
48000