Differential Analysis for a Discounted Product

Dish N' Dat Company

Product-Line Income Statement

For the Month Ended May 31

Bowls Plates Cups

Sales $71,000 $105,700 $33,500

Cost of goods sold $32,600 $42,300 $20,600

Gross profit $38,400 $63,400 $12,900

Selling and administrative expenses $27,400 $42,800 $17,200

Income from operations $11,000 $20,600 $(4,300)

Fixed costs are 15% of the cost of goodssold and 30% of the selling and administrative expenses. Dish N' Dat assumes that fixed costs would not be materially affected of the cups line were discontinued.

a. Display a differential analysis dated May 31 to determine if cups should be continued ( Alternative 1) or discontinued ( Alternative 2)

b. Should the cups line be retained? Why