Differential Analysis for a Discontinued Product 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 31 Sales Cost of goods sold Gross profit Selling and administrative expenses Operating income (loss) Hats Gloves Mufflers $64,100 $89,400 $27,900 (26,400) (32,500) (13,900) $37,700 $56,900 $14,000 (30,200) $7,500 (34,400) $22,500 (15,400) $(1,400) Fixed costs are 17% of the cost of goods sold and 41% 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 Analysis Continue (Alt. 1) or Discontinue (Alt. 2) Mufflers October 31 Continue Mufflers Discontinue Mufflers Differential Effects Revenues Costs: (Alternative 1) (Alternative 2) (Alternative 2) 27,900 0 27,900 Variable cost of goods sold 11,537 0 11,537 Variable selling and admin. expenses 8,624 X 0 8,624 X Fixed costs 9,139 x 9,139 X 0 Profit (Loss) 1,400 X 9,139 X 7,739 X Feedback b. Should the Mufflers line be retained? Yes