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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 Income Statement For the
The condensed product-line income statement for Northern Lights Company for the month of August is as follows:
Line Item Description | Hats | Gloves | Socks |
---|---|---|---|
Sales | $64,000 | $88,400 | $27,500 |
Cost of goods sold | (26,000) | (32,700) | (15,700) |
Gross profit | $38,000 | $55,700 | $11,800 |
Selling and administrative expenses | (30,000) | (35,700) | (15,200) |
Operating income (loss) | $8,000 | $20,000 | $(3,400) |
Fixed costs are 16% 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.
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 lossStep by Step Solution
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