Mastery Problem: Differential Analysis and Product Pricing WoolCorp WookCorp buys sheep's wool from farmers. The company began operations in January of this year, and is making decisions on product offerings, pricing, and vendors. The company is also examining its method of assigning overhead to products. You've just been hired as a production manager at WoolCorp Cumently WoolCorp makes three products: (1) rew, clean wool to be used as stuffing or insulation; (2) wool yarn for use in the textile industry, and (3) extra thick yam for using upper management would like your recommendations regarding a production decision regarding their current and proposed product ins Continue/Discontinue For the past year, WoolCorp has experimented with its third product, extra thick rug yam. The company wishes to consider whether to continue or discontinue manufacturing and setting the product. You decide to prepare a differential analysis of the income related to a three products. To begin your analysis, you review the folowing condensed income statement. Then scroll down to complete the differential analysis WoolCorp Condensed Income Statement For the Year Ended December 31, 2018 I Sales Costs of goods sold Raw Wool $210,000 Wool Yarn $155,000 Rug Yarn Total Company $197,000 $502,000 Variable costs $48,000) 118,000) Fixed costs (32,000) (12,400 Total cost of goods sold 100,000) $31.000 37,150 (24,780) $61.930) $103,750) Gross profit $130,000 $124,000 $135,070 (49,180) 1172,930) $389,070 Operating expenses $15,000) $7,750 $53,110) 65,000) Fixed expenses 189,000 (77,500) (106,200) (272,700) Total operating expenses $94,000) 5/85,250) $159,310) 1338,560) 36.000 250 ALM30 Tetal operating expenses Operating income Doss) $94,000) $36.000 $5,250) $38,750 $159,310) $124,240) 38,500) 150,510 Complete the following table using the data in the preceding income statement to compare the effects of dropping the rug yam leve of products If required, mes sign to indicates Differential Analysis Continue Rug Yarn (Alternative 1) or Discontinue Rug Yarn (Alternative 2) December 31, 2018 Continue Rug Yarn (Alternative 1) Discontinue Rug Yarn (Alternative 2) Differential Effects (Alternative 2) 197,000 Revenues Costs Variable Fixed Profit (loss) Final Questions Answer the following question (1), then fill in table (2) 1. After reviewing your work on the Continue/Discontinue panel, should WoolCorp continue (Alternative 1) or discontinue (Alternative 2) the gym 2. The following table shows several business decisions that might need to be made across the top ru Along the left-hand column, there are important factors to conside Select the factors) that are important to the decision. Select all that apply. If the factor is not important to any of the decisions, select "yes" on the "Not Important" dropdown, there select " Lease or Sell Sell or Process Further Special Price Order Make or Buy Continue or Discontinue Production Bottleneck Impact on regular prices Contribution margin per bottleneck hour Differential revenue is more than Not Important Revenues Cests: Variable Fixed Profit (loss)) DECEMBER 31, 2018 Continue Rug Yarn (Alternative 1) Discontinue Rug Yarn (Alternative 2) Differential Effects (Alternative 2) 197,000 000 10000 Final Questions Ameer the following question (1), then fill in table (2) 1. After reviewing your work on the Continue/Discontinue panal, should WoolCorp continue (Alternative 1) or discontinue (Alternative 23 the rug vam product ine? 2. The following table shows several business decisions that might need to be made across the top row. Along the left-hand column, there are important factors to consider Select the factor(s) that are important to the decision. Select all that apply. If the factor is not important to any of the decisions, select "yes" on the "Not Important" dropdown, otherwise select" Lease or Sell Sell or Process Further Special Price Order Make or Buy Continue or Discontinue Production Bottleneck Impact on regular prices Contribution margin per bottleneck hour Differential revenue is more than afferential cost Supplier price is less then WoolCorps variable cost per unit Sunk costs Robinson-Patman Act Not Important