Top managers of Vermont Flooring are alarmed by their operating losses. They are

Top managers of Vermont 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:

New York Flooring
Product Line Contribution Margin Income Statement
For the Year
Product lines
Wood flooring Laminate flooring Company Total
Sales revenue
$303,000 $130,000 $433,000
Less: Variable expenses
159,000 88,000 247,000
Contribution margin
$144,000 $42,000 $186,000
Less fixed expenses:
Manufacturing
75,000 53,000 128,000
Marketing and administrative
50,000 17,000 67,000
Operating income (loss)
$19,000 $(28,000) $(9,000)
Total fixed costs will not change if the company stops selling laminate flooring

Requirements
a. Prepare an incremental analysis to show whether Vermont Flooring should discontinue the laminate flooring product line. Will discontinuing laminate flooring add $28,000 to operating income? Explain.
b. Assume that the company can avoid $32,000 of fixed expenses by discontinuing the laminate flooring product line (these costs are direct fixed costs of the laminate flooring product line). Prepare an incremental analysis to show whether the company should stop selling laminate flooring.
c. Now, assume that all of the fixed costs assigned to laminate flooring are direct fixed costs and can be avoided if the company stops selling laminate flooring. However, marketing has concluded that wood flooring sales would be adversely affected by discontinuing the laminate flooring line (retailers want to buy both from the same supplier). Wood flooring production and sales would decline 10%. What should the company do?