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
	Hats			Gloves			Mufflers
Sales	$64,500			$89,000			$27,800
Cost of goods sold	(26,700)			(32,900)			(13,900)
Gross profit	$37,800			$56,100			$13,900
Selling and administrative expenses	(28,800)			(34,900)			(14,600)
Operating income (loss)	$9,000			$21,200			$(700)

Fixed costs are 16% of the cost of goods sold and 42% of the selling and administrative expenses. Rhinebeck Company assumes that fixed costs would not be materially affected if the Gloves line were discontinued.

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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 (Alternative 1)	Discontinue Mufflers (Alternative 2)	Differential Effects (Alternative 2)
Revenues	$fill in the blank 0d7f0c00503f02e_1	$fill in the blank 0d7f0c00503f02e_2	$fill in the blank 0d7f0c00503f02e_3
Costs:
Variable cost of goods sold	fill in the blank 0d7f0c00503f02e_4	fill in the blank 0d7f0c00503f02e_5	fill in the blank 0d7f0c00503f02e_6
Variable selling and admin. expenses	fill in the blank 0d7f0c00503f02e_7	fill in the blank 0d7f0c00503f02e_8	fill in the blank 0d7f0c00503f02e_9
Fixed costs	fill in the blank 0d7f0c00503f02e_10	fill in the blank 0d7f0c00503f02e_11	fill in the blank 0d7f0c00503f02e_12
Profit (Loss)	$fill in the blank 0d7f0c00503f02e_13	$fill in the blank 0d7f0c00503f02e_14	$fill in the blank 0d7f0c00503f02e_15

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b. Should the Mufflers line be retained?

Yes No

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