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The condensed product - line income statement for Northern Lights Company for the month of August is as follows: Northern Lights Company Product - Line

The condensed product-line income statement for Northern Lights Company for the month of August is as follows:
Northern Lights Company
Product-Line Income Statement
For the Month Ended August 31
Line Item Description Hats Gloves Socks
Sales $64,600 $88,500 $27,100
Cost of goods sold (26,600)(32,900)(14,300)
Gross profit $38,000 $55,600 $12,800
Selling and administrative expenses (29,600)(34,900)(15,600)
Operating income (loss) $8,400 $20,700 $(2,800)
Fixed costs are 17% of the cost of goods sold and 42% of the selling and administrative expenses. Northern Lights Company assumes that fixed costs would not be materially affected if the Socks line were discontinued.
Question Content Area
a. Prepare a differential analysis dated August 31 to determine if Socks 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) Socks
August 31
Line Item Description Continue
Socks
(Alternative 1) Discontinue
Socks
(Alternative 2) Differential
Effects
(Alternative 2)
Revenues $Revenues
$Revenues
$Revenues
Costs:
Variable cost of goods sold Variable cost of goods sold
Variable cost of goods sold
Variable cost of goods sold
Variable selling and admin. expenses Variable selling and admin. expenses
Variable selling and admin. expenses
Variable selling and admin. expenses
Fixed costs Fixed costs
Fixed costs
Fixed costs
Profit (Loss) $Profit (Loss)
$Profit (Loss)
$Profit (Loss)
Question Content Area
b. Should the Socks line be retained?

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