The condensed product-line income statement for Porcelain Tableware Company for

Question

The condensed product-line income statement for Porcelain Tableware Company for the month of December is as follows:

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Fixed costs are 15% of the cost of goods sold and 40% of the selling and administrative expenses. Porcelain Tableware assumes that fixed costs would not be materially affected if the Cups line were discontinued.

Prepare a differential analysis dated December 31, 2012, to determine if cups should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter zero "0".

  

  

Explanation / Answer

ALTERNATIVE 1

CUPS ARE CONTINUED

ALTERNATIVE 2

CUPS ARE DISCONTINUED

IF THE PRODUCT IS CONTINUED IT WILL LEAD TO HIGHER PROFITS THAN IF CUPS ARE DISCONTIUED.. HENCE IT IS BETTER TO PRODUCE CUPS

BOWLS PLANTS CUPS total SALES $65,000 $89,400 $26,900 $181,300 variable cogs 22355 27880 12580 $62,815 variable selling expenses 17640 20940 9240 $47,820 fixed cost 15,705 18,880 8,380 $42,965 income $9,300 $21,700 ($3,300) $27,700

ALTERNATIVE 2

CUPS ARE DISCONTINUED

BOWLS PLANTS CUPS total SALES $65,000 $89,400 $0 $154,400 variable cogs 22355 27880 0 $50,235 variable selling expenses 17640 20940 0 $38,580 fixed cost 15,705 18,880 8,380 $42,965 income $9,300 $21,700 ($8,380) $22,620

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