Question
Differential Analysis for a Discontinued Product The condensed product-line income statement for Dish N Dat Company for the month of May is as follows: Dish
Differential Analysis for a Discontinued Product
The condensed product-line income statement for Dish N Dat Company for the month of May is as follows:
Dish N' Dat Company Product-Line Income Statement For the Month Ended May 31 | ||||||||
Bowls | Plates | Cups | ||||||
Sales | $71,000 | $105,700 | $33,500 | |||||
Cost of goods sold | 32,600 | 42,300 | 20,600 | |||||
Gross profit | $38,400 | $63,400 | $12,900 | |||||
Selling and administrative expenses | 27,400 | 42,800 | 17,200 | |||||
Income from operations | $11,000 | $20,600 | $(4,300) |
Fixed costs are 15% of the cost of goods sold and 30% of the selling and administrative expenses. Dish N' Dat assumes that fixed costs would not be materially affected if the Cups line were discontinued.
a. Prepare a differential analysis dated May 31 to determine if Cups should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.
Differential Analysis | |||
Continue Cups (Alt. 1) or Discontinue Cups (Alt. 2) | |||
For the Month Ended May 31 | |||
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) | $ | $ | $ |
b. Should the Cups line be retained? Explain.
As indicated by the differential analysis in part (A), the income will by $ if the Cups line is discontinued.
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