Differential Analysis for a Discontinued Product The condensed product-line income statement for Northern Lights Company for the month of August is as follows: Northern Lights Company Product-Line Income Statement For the Month Ended August 31 Hats Gloves Socks Sales $64,300 $89,500 $26,300 Cost of goods sold (25,900) (33,200) (14,000) Gross profit $38,400 $56,300 $12,300 Selling and administrative expenses (29,500) (34,800) (15,000) Operating income (loss) $8,900 $21,500 $(2,700) Fixed costs are 13% of the cost of goods sold and 39% of the selling and administrative expenses. Northern Lights Company assumes that fixed costs would not be materially affected if the Socks line were discontinued. a. Prepare a differential analysis dated August 31 to determine if Socks 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 Analysis Continue (Alt. 1) or Discontinue (Alt. 2) Socks Revenues Line Item Description August 31 Continue Socks Discontinue Socks Differential Effects (Alternative 1) (Alternative 2) (Alternative 2) a. Prepare a differential analysis dated August 31 to determine if Socks 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 Analysis Continue (Alt. 1) or Discontinue (Alt. 2) Socks Line Item Description August 31 Continue Revenues Costs: Variable cost of goods sold Variable selling and admin. expenses Fixed costs Profit (Loss) Differential Effects Discontinue Socks Socks (Alternative 1) (Alternative 2) (Alternative 2)