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Differential Analysis for a Discontinued Product The condensed product-line income statement for 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 $27,700 Sales 566,000 590,000 26,400 33,800 15,600 Cost of goods sold Gross profit Selling and administrative expenses $39,600 556,200 $12,100 29,900 34,800 15,200 Income from operations $9,700 521,400 $(3,100) Fixed costs are 12% of the cost of goods sold and 38% of the selling and administrative expenses. Dish N' Dat assumes that fixed costs would not be materially affected if the Cups line were discontinued. a. Prepare a differential analysis dated March 31 to determine if Cups should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "O". Use a minus sign to indicate a loss. Differential Analysis Continue Cups (Alt. 1) or Discontinue Cups (Alt. 2) March 31 Continue Cups (Alternative 1) Discontinue Cups (Alternative 2) Differential Effect on Income (Alternative 2) Revenues Costs: Variable cost of goods sold Variable selling and admin. expenses Fixed costs Income (Loss) Differential Analysis for a Discontinued Product A condensed income statement by product line for Healthy Beverage Inc. indicated the following for Fruit Cola for the past year: Sales $232,100 Cost of goods sold 108,000 Gross profit $124,100 Operating expenses 145,000 Loss from operations $(20,900) It is estimated that 14% of the cost of goods sold represents fixed factory overhead costs and that 18% of the operating expenses are fixed. Because Fruit Cola is only one of many products, the fixed costs will not be materially affected if the product is discontinued. a. Prepare a differential analysis dated January 5 to determine whether Fruit Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "O". Use a minus sign to indicate a loss. Differential Analysis Continue Fruit Cola (Alt. 1) or Discontinue Fruit Cola (Alt. 2) January 5 Continue Fruit Cola (Alternative 1) Discontinue Fruit Cola (Alternative 2) Differential Effect on Income (Alternative 2) Revenues Costs: Variable cost of goods sold Variable operating expenses Fixed costs Income (Loss)Step by Step Solution
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