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The condensed product-line income statement for Porcelain Tableware Company for the month of May is as follows: Porcelain Tableware Company Product-Line Income Statement For the
The condensed product-line income statement for Porcelain Tableware Company for the month of May is as follows: Porcelain Tableware Company Product-Line Income Statement For the Month Ended May 31 Bowls Plates Cups Sales $64,900 $88,800 $27,500 Cost of goods sold 25,400 32,900 14,300 Gross profit $39,500 $55,900 $13,200 Selling and administrative expenses 30,000 Income from operations $9,500 34,700 $21,200 15,600 $(2,400) Fixed costs are 15% of the cost of goods sold and 39% of the selling and administrative expenses. Porcelain Tableware assumes that fixed costs would not be materially affected if the Cups line were discontinued. a. Prepare a differential analysis dated May 31 to determine if Cups should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Continue Cups (Alt. 1) or Discontinue Cups (Alt. 2) For the Month Ended May 31 Continue Cups Discontinue Cups (Alternative 1) (Alternative 2) Differential Effect on Income (Alternative 2) Revenues Costs: Variable cost of goods sold Variable selling and admin. expenses Fixed costs Income (Loss) Feedback b. Should the Cups line be retained? Explain. Yes As indicated by the differential analysis in part (a), the income will decrease by $ if the Cups line is discontinued
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