1A: Discontinued Product (12+3) Eflex Inc. produces a number of sports drinks and supplements. One of its products - Flexi B has been reporting loss for a number of years and management is considering discontinuing the product. The following information is gathered from the income statement prepared for Flexi B for 20Y2. Sales Costs of Goods Sold (COGS) Gross Profit o Operating expenses 11 Loss from operation 12 $690,000 $530,000 $160,000 $180,000 ($20,000) 13 Of the total COGS, 20% is fixed, Of the total Operating expenses, 15% is fixed. 14 The fixed costs charged to Flexi B are an allocation of the total fixed costs of the company and 15 therefore, cannot be eliminated if the product is discontinued. 16 17 Required: 18 ) Prepare a differential analysis using the table below to recommend if Flexi B should be retained (Alt. 1) or discontinued (Alt. 2) 19 20 21 22 23 Differential Analysis Retain (Alt. 1) or Discontinue (Alt. 2) Flexi B Retain (Alt 1) $ Discontinue (Alt. 2) Differential impact of Alt. 2 on income $ Alt. 1-Alt.2 $ 24 Revenues 25 Costs: Variable cost of goods sold Variable operating expenses 26 27 28 Fixed costs 29 Income (loss) 31 ) Do you recommend Eflex to discountinue the product? Explain your answer. 32 Answer: 33 34 35 Problem 1B: Make or Buy (12+2) 36 Assume that Eflex received an offer from a foreign manufacturer to buy Flexi B at a cost of $52 per unit. 37 The current production costs for Eflex to produce each unit of Flexi B includes: 38 Direct materials costs per unit 39 Direct labor costs per unit Variable overhead costs 40 41 Fixed overhead costs 42 Total cost per unit 43 $25 $12 $8 $12 $57 44 If Eflex buys Flexi B from the foreign manufacturer, the fixed costs cannot be avoided as they are allocated fixed costs. 45 46 Required: 47 ) Prepare a differential analysis using the table below to recommend if Eflex should produce (Alt.1) or buy (Alt. 2) Flexi B. 48 49 Differential Analysis 50 Make (Alt. 1) or Buy (Alt. 2) Flexi B 51 52 Unit price and costs Make (Alt. 1) $ Buy (Alt. 1) Differential impact of Alt. 2 on income $ Alt. 1-Alt.2 53 Sales price $0 $0 $0 55 Purchase price 54 Unit costs: 56 Direct materials 57 Direct labor 58 Variable factory overhead 59 Fixed factory overhead 60 Income (loss) 61 Sales price per unit is not provided in the question and hence entered as $0. 62 63) Do you recommend Eflex to buy the product from the foreign manufacturer? Explain your answer. 64 Answer 65 66