1. WoolCorp

   WoolCorp buys sheeps 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. Youve just been hired as a production manager at WoolCorp.

   Currently WoolCorp makes three products: (1) raw, clean wool to be used as stuffing or insulation; (2) wool yarn for use in the textile industry, and (3) extra-thick yarn for use in rugs.

   Upper management would like your recommendations regarding a production decision regarding their current and proposed product lines.

   Question Content Area

   Continue/Discontinue

   For the past year, WoolCorp has experimented with its third product, extra-thick rug yarn. The company wishes to consider whether to continue or discontinue manufacturing and selling this product. You decide to prepare a differential analysis of the income related to all three products. To begin your analysis, you review the following condensed income statement. Then scroll down to complete the differential analysis.

   WoolCorp Condensed Income Statement For the Year Ended December 31, 20Y8
   	Raw Wool			Wool Yarn			Rug Yarn			Total Company
   Sales		$200,000			$155,000			$187,000		$542,000
   Costs of goods sold:
   Variable costs	$(48,000)	$(18,600)	$(37,180)	$(103,780)
   Fixed costs	(32,000)	(12,400)	(24,780)	(69,180)
   Total cost of goods sold	$(80,000)	$(31,000)	$(61,960)	$(172,960)
   Gross profit	$120,000	$124,000	$125,040	$369,040
   Operating expenses:
   Variable expenses	$(5,000)	$(7,750)	$(53,100)	$(65,850)
   Fixed expenses	(89,000)	(77,500)	(106,200)	(272,700)
   Total operating expenses	$(94,000)	$(85,250)	$(159,300)	$(338,550)
   Operating income (loss)	$26,000	$38,750	$(34,260)	$30,490

   Complete the following table using the data in the preceding income statement to compare the effects of dropping the rug yarn line of products. If required, use a minus sign to indicate a loss.

   Differential Analysis Continue Rug Yarn (Alternative 1) or Discontinue Rug Yarn (Alternative 2) December 31, 20Y8

   	Continue Rug Yarn (Alternative 1)	Discontinue Rug Yarn (Alternative 2)	Differential Effects (Alternative 2)
   Revenues	$fill in the blank bc578efd6060032_1	$fill in the blank bc578efd6060032_2	$fill in the blank bc578efd6060032_3
   Costs:
   Variable	fill in the blank bc578efd6060032_4	fill in the blank bc578efd6060032_5	fill in the blank bc578efd6060032_6
   Fixed	fill in the blank bc578efd6060032_7	fill in the blank bc578efd6060032_8	fill in the blank bc578efd6060032_9
   Profit (loss)	$fill in the blank bc578efd6060032_10	$fill in the blank bc578efd6060032_11	$fill in the blank bc578efd6060032_12

   Question Content Area

   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 rug yarn product line?

   Continue (Alternative 1).Discontinue (Alternative 2).The company is indifferent between Alternative 1 and Alternative 2.

   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 "no".

   	Lease or Sell	Sell or Process Further	Special Price Order	Make or Buy	Continue or Discontinue	Production Bottleneck	Not Important
   Impact on regular prices	YesNo	YesNo	YesNo	YesNo	YesNo	YesNo	YesNo
   Contribution margin per bottleneck hour	YesNo	YesNo	YesNo	YesNo	YesNo	YesNo	YesNo
   Differential revenue is more than differential cost	YesNo	YesNo	YesNo	YesNo	YesNo	YesNo	YesNo
   Supplier price is less than WoolCorps variable cost per unit	YesNo	YesNo	YesNo	YesNo	YesNo	YesNo	YesNo
   Sunk costs	YesNo	YesNo	YesNo	YesNo	YesNo	YesNo	YesNo
   Robinson-Patman Act	YesNo	YesNo	YesNo	YesNo	YesNo	YesNo	YesNo