1.The condensed product-line income statement for Rhinebeck Company for the month of October is as follows:

Rhinebeck Company

Product-Line Income Statement

For the Month Ended October 31HatsGlovesMufflersSales$64,100$88,900$25,900Cost of goods sold(26,100)(32,400)(14,500)Gross profit$38,000$56,500$11,400Selling and administrative expenses(30,300)(35,000)(14,400)Operating income (loss)$7,700$21,500$(3,000)

Fixed costs are 14% of the cost of goods sold and 35% of the selling and administrative expenses. Rhinebeck Company assumes that fixed costs would not be materially affected if the Gloves line were discontinued.

a.Prepare a differential analysis dated October 31 to determine if Mufflers should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.

Differential AnalysisContinue (Alt. 1) or Discontinue (Alt. 2) MufflersOctober 31Continue

Mufflers

(Alternative 1)Discontinue

Mufflers

(Alternative 2)Differential

Effects

(Alternative 2)Revenues$

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$

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$

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Costs:Variable cost of goods soldfill in the blank da833704006501e_4

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Variable selling and admin. expensesfill in the blank da833704006501e_7

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Fixed costsfill in the blank da833704006501e_10

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Profit (Loss)$

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$

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$

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b.Should the Mufflers line be retained?

2.Decision to Discontinue a Product

On the basis of the following data, the general manager of Hawkeye Shoes Inc. decided to discontinue Children's Shoes because it reduced operating income by $30,000.

Hawkeye Shoes Inc.

Product-Line Income Statement

For the Year Ended November 30, 20Y8Children's ShoesMen's ShoesWomen's ShoesTotalSales$280,000$300,000$500,000$1,080,000Costs of goods sold:Variable costs$(135,000)$(150,000)$(220,000)$(505,000)Fixed costs(45,000)(60,000)(120,000)(225,000)Total cost of goods sold$(180,000)$(210,000)$(340,000)$(730,000)Gross profit$100,000$90,000$160,000$350,000Selling and administrative expenses:Variable selling and admin. expenses$(100,000)$(45,000)$(95,000)$(240,000)Fixed selling and admin. expenses(30,000)(20,000)(25,000)(75,000)Total selling and admin. expenses$(130,000)$(65,000)$(120,000)$(315,000)Operating income (loss)$(30,000)$25,000$40,000$35,000

a.Prepare a differential analysis to determine the flaw in the general manager's decision. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.

Differential AnalysisContinue (Alt. 1) or Discontinue (Alt. 2) Children's ShoesNovember 30Continue

Children's Shoes

(Alternative 1)Discontinue

Children's Shoes

(Alternative 2)

Differential

Effects

(Alternative 2)Revenues$

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$

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$

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Costs:Variable cost of goods soldfill in the blank dd05bbff0079ff4_4

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Variable selling and admin. expensesfill in the blank dd05bbff0079ff4_7

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Fixed costsfill in the blank dd05bbff0079ff4_10

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Profit (Loss)$

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$

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$

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b.What is the flaw in the decision to discontinue Children's Shoes, if it is assumed fixed costs would not be materially affected by the discontinuance?

3.Make-or-Buy Decision

Somerset Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $62 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 46% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows:

Direct materials$29Direct labor18Factory overhead (46% of direct labor)8.28Total cost per unit$55.28

If Somerset Computer Company manufactures the carrying cases, fixed factory overhead costs will not increase and variable factory overhead costs associated with the cases are expected to be 16% of the direct labor costs.

a.Prepare adifferential analysisdated April 30 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case.If required, round your answers to two decimal places.If an amount is zero, enter "0".

Differential AnalysisMake Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2)April 30Make

Carrying

Case

(Alternative 1)Buy

Carrying

Case

(Alternative 2)

Differential

Effects

(Alternative 2)Unit costs:Purchase price$

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$

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$

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Direct materialsfill in the blank 388dad008f86f8a_4

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Direct laborfill in the blank 388dad008f86f8a_7

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Variable factory overheadfill in the blank 388dad008f86f8a_10

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Fixed factory overheadfill in the blank 388dad008f86f8a_13

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Total unit costs$

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$

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$

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b.Assuming there were no better alternative uses for the spare capacity, it would

to manufacture the carrying cases. Fixed factory overhead is

to this decision.