A company needs to know if they should discontinue a product. Product Stats: Sal
ID: 2371543 • Letter: A
Question
A company needs to know if they should discontinue a product.
Product Stats:
Sales = $200,000
Variable costs = $125,000
Fixed costs = $50,000
Total cost of goods sold $175,000
Gross profit $25,000
Variable selling and admin. expenses $28,000
Fixed selling and admin. expenses $22,000
Total selling and admin. expenses $50,000
Income (loss) from operations -$25,000
A
B
C
D
1
Differential Analysis
2
Continue Product (Alt. 1) or Discontinue Product (Alt. 2)
3
4
Continue
(Alternative 1)
Discontinue
(Alternative 2)
Differential Effect
on Income
(Alternative 2)
5
Revenues
6
Costs:
7
Variable cost of goods sold
8
Variable selling and admin. expenses
9
Fixed costs
10
Income (Loss)
–$25,000
–$???????
–$ ????????
I'm really confused how the Income (loss) for Alternative 1 ends up being -$25,000. When I try I don't end up with that number. Could you please show me what to do for the first column Alternative 1? I want to compare and see what I'm doing wrong, thanks.
A
B
C
D
1
Differential Analysis
2
Continue Product (Alt. 1) or Discontinue Product (Alt. 2)
3
4
Continue
(Alternative 1)
Discontinue
(Alternative 2)
Differential Effect
on Income
(Alternative 2)
5
Revenues
6
Costs:
7
Variable cost of goods sold
8
Variable selling and admin. expenses
9
Fixed costs
10
Income (Loss)
–$25,000
–$???????
–$ ????????
Explanation / Answer
Continue (Alternative 1) Revenues $ 200,000.00 Costs: Variable cost of goods sold $ 125,000.00 Variable selling and admin.expenses $ 28,000.00 Fixed costs $ 72,000.00 Income (Loss) -$ 25,000.00
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