24-5

Differential Analysis for a Discontinued Product

The condensed product-line income statement for Porcelain Tableware Company for the month of December is as follows:

Porcelain Tableware Company Product-Line Income Statement For the Month Ended December 31, 2014
	Bowls			Plates			Cups
Sales	$65,900			$90,300			$25,900
Cost of goods sold	25,500			32,000			14,000
Gross profit	$40,400			$58,300			$11,900
Selling and administrative expenses	29,400			34,100			15,500
Income from operations	$11,000			$24,200			$(3,600)

Fixed costs are 12% of the cost of goods sold and 38% of the selling and administrative expenses. Porcelain Tableware assumes that fixed costs would not be materially affected if the Cups line were discontinued.

a. Prepare a differential analysis dated December 31, 2014, to determine if Cups should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter zero "0".

Differential Analysis
Continue Cups (Alt. 1) or Discontinue Cups (Alt. 2)
December 31, 2014
		Continue Cups (Alternative 1)		Discontinue Cups (Alternative 2)		Differential Effect on Income (Alternative 2)
Revenues		$		$		$
Costs:
Variable cost of goods sold
Variable selling and admin. expenses
Fixed costs
Income (Loss)		$		$		$