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 $64,400 $90,100 $27,500 Cost of goods sold (25,600) (33.200) (14,200) Gross profit $38,800 $56,900 $13.300 Selling and administrative expenses (29,000) (34,500) (14.800) Operating income (loss) $9,800 $22,400 $1.500) Fixed costs are 15% of the cost of goods sold and 44% 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 August 31 Revenues Line Item Description Continue Discontinue Differential Socks Socks Effects (Alternative 1) (Alternative 2) (Alternative 2) STOSE PROE $38,800 $13,500 Selling and administrative expenses (29,000) (34,500) (14,800) Operating income (loss) $9,800 $22,400 $(1,500) Fixed costs are 15% of the cost of goods sold and 44% 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 August 31 Line Item Description Revenues Costs Variable cost of goods sold Variable selling and admin. expenses Fixed costs Profit (Loss) b. Should the Socks line be retained? Yes No Continue Socks Discontinue Socks Differential Effects (Alternative 1) (Alternative 2) (Alternative 2)