Question
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
Differential Analysis for a Discontinued Product
The condensed product-line income statement for Northern Lights Company for the month of August is as follows:
Line Item Description | Hats | Gloves | Socks |
---|---|---|---|
Sales | $65,100 | $89,300 | $27,700 |
Cost of goods sold | (26,600) | (33,200) | (14,000) |
Gross profit | $38,500 | $56,100 | $13,700 |
Selling and administrative expenses | (28,600) | (35,600) | (16,000) |
Operating income (loss) | $9,900 | $20,500 | $(2,300) |
Fixed costs are 13% of the cost of goods sold and 37% of the selling and administrative expenses. Northern Lights Company assumes that fixed costs would not be materially affected if the Socks line were discontinued.
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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.
Line Item Description | Continue Socks (Alternative 1) | Discontinue Socks (Alternative 2) | Differential Effects (Alternative 2) |
---|---|---|---|
Revenues | $Revenues | $Revenues | $Revenues |
Costs: | |||
Variable cost of goods sold | Variable cost of goods sold | Variable cost of goods sold | Variable cost of goods sold |
Variable selling and admin. expenses | Variable selling and admin. expenses | Variable selling and admin. expenses | Variable selling and admin. expenses |
Fixed costs | Fixed costs | Fixed costs | Fixed costs |
Profit (Loss) | $Profit (Loss) | $Profit (Loss) | $Profit (Loss) |
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