Question

3. Totally Technology manufactures Cameras and Video Recorders.The company's product line income statement follows:

	Camera	Video Recorder	Total
Sales revenue	$300,000	$100,000	$400,000
Cost of goods sold
Variable	$75,000	$49,000	$124,000
Fixed	$82,000	$28,000	$110,000
Total cost of goods sold	$157,000	$77,000	$234,000
Gross profit	$143,000	$23,000	$166,000
Marketing and administrativeexpenses
Variable	$25,000	$28,000	$53,000
Fixed	$32,000	$19,000	$51,000
Total marketing andadministrative expenses	$57,000	$47,000	$104,000
Operating income (loss)	$86,000	(24,000)	$62,000

Management is considering discontinuing the Video Recorderproduct line. Accountants for the company estimate thatdiscontinuing the Video Recorder line will decrease fixed cost ofgoods sold by $10,000 and fixed marketing and administrativeexpenses by $4,000.Prepare an analysis supporting your opinionabout whether or not the Video Recorder product line should bediscontinued.