Differential analysis for a discontinued product The summary statement of income and expenses of the product line of Dish N' Dat Company for the month of March is as follows: Dish N'Dat Company Product-Line Income Statement For the Month Ended March 31 Bowls Plates Cups Sales $71,000 Cost of goods sold 32,600 $105,700 42,300 $31,300 16,800 Gross profit $38,400 $ 63,400 $14,500 Selling and administrative expenses 27,400 42.800 16,700 Income from operations $11,000 $20,600 $(2,200) Fixed costs are 15% of the cost of goods sold (cost of goods sold) and 40% of selling and administrative expenses. Dish N' Dat assumes that fixed costs would not be significantly affected if the cups line is discontinued. a. Prepare differential analysis report as of March 31 to determine if cup production should continue (Alternative 1) or if cup production should be discontinued (Alternative 2). b. Should cup production be continued or discontinued? explain. Make or Buy (produce it or buy it) Diamond Computer Company has been purchasing carrying cases for its laptop computers at a purchase price of $70 per unit. The company, which currently operates below its productive capacity, applies indirect production costs (factory overhead) at a rate of 40% of direct labor cost (at a rate of 40% of direct labor cost). The unit costs to produce the carrying cases for the computers are expected to be as follows: Direct materials Direct labor Factory overhead (40% of direct labor) Total cost per unit $45 20 $73 If Diamond Computer Company manufactures the carrying cases for the computers, the factory overhead fixed costs will not increase and the factory overhead variable costs will be 15% of the direct labor cost. a. Prepare differential analysis report dated July 19 for determine if the company should produce (make) or buy (buy) the briefcases (carrying cases) to transport the computers. b. According to the results obtained from the differential analysis, would it be recommendable to produce (make) or buy (buy) the briefcases (carrying cases) to transport the computers? explain. Differential analysis to rent or sell (lease or sell) Inman Construction Company is considering selling a piece of equipment with a book value of $280,000 (original cost of $400,000 less accumulated depreciation of $120,000) for the price of $292,000, less a 5% commission on the sale. In the alternative, the machinery can be leased for a total of $312,000 for five years, after which it is expected to have no residual value. During the lease period, Inman Construction Company's costs for repairs, insurance, and property taxes are expected to be $36,000. Instructions: a. Prepare a differential analysis report, dated January 3, 2019, to evaluate the decision to lease or sell the machinery. b. According to the results obtained, would it be advisable to rent or sell (lease or sell the machinery? Differential analysis for machine replacement or to continue its use (replace or continue) Singapore Digital Components Company assembles circuit boards using hand-held machinery to insert electronic components. The original cost of the machine is $60,000, accumulated depreciation is $24,000, its remaining useful life is five years, and its salvage value is zero. On February 20, 2019, the company was presented with a proposal to replace the current manufacturing process with a fully automatic machine that will cost $111,000. The automatic machine has an estimated useful life of five years and a residual value of zero. The following annual data information regarding current operations was accumulated from the use of the machine and the results to be produced if the machine in use is replaced by automated equipment: Sales Direct materials Direct labor Power and maintenance Taxes, insurance, etc. Selling and administrative expenses Total expenses Present Operations Proposed Operations $290,000 $290,000 $ 86,000 40,000 8,000 4,000 $ 86,000 30,000 7,000 65,000 65.000 $203.000 $188,000 Instructions: a. Prepare a differential analysis report to assess whether to continue using the machinery currently in use or to replace it with the automated machine. b.According to the results obtained, should the current machine continue to be used or should it be replaced by the automated machine? Key Code: [Key code here] Instructions Answers are entered in the cells with gray backgrounds. Cells with non-gray backgrounds are protected and cannot be edited. An asterisk (*) will appear to the right of an incorrect entry. Enter a zero in cells you would otherwise leave blank. Differential Analysis Revenues Costs: Continue or Discontinue Cups March 31, 2016 Continue Cups (Alternative 1) Discontinue Cups (Alternative 2) Variable cost of goods sold Variable selling and admin. expenses Fixed costs Income (loss) The Cups line should be would since income by if the cups were discontinued. Differential Effect on Income (Alternative 2) Instructions Answers are entered in the cells with gray backgrounds. O Cells with non-gray backgrounds are protected and cannot be edited. An asterisk (*) will appear to the right of an incorrect entry. Enter a zero in cells you would otherwise leave blank. Differential Analysis Costs: Purchase price Make or Buy Carrying Case July 19 Make Carrying Case (Alternative 1) Buy Carrying Case (Alternative 2) Direct materials per unit Direct labor per unit Variable factory overhead per unit Fixed factory overhead per unit Income (loss) Assuming there are no better uses for the spare capacity, the carrying cases should be would by The fixed factory overhead is since costs per unit by doing so. to the decision. Differential Effect on Income (Alternative 2)