Product TS-20 has revenue of $102,190, variable cost of goods sold of $51,100, v

Question

Product TS-20 has revenue of $102,190, variable cost of goods sold of $51,100, variable selling expenses of $21,460, and fixed costs of $35,260, creating a loss from operations of $5,630.

Determine if Product TS-20 should be continued (Alternative 1) or discontinued (Alternative 2).

Continue Product TS-20

Required: 1. Using the information given, complete the differential analysis as of September 12 to determine if Product TS-20 should be continued (Alternative 1) or discontinued (Alternative 2), assuming fixed costs are unaffected by the decision. 2.

Determine if Product TS-20 should be continued (Alternative 1) or discontinued (Alternative 2).

Continue Product TS-20

Discontinue Product TS-20 Differential Effect on Income Alternative 1 Alternative 2 Alternative 2 Revenue 102,190.00 0.00 -102,190.00 Costs: Variable cost of goods sold 0.00 Fixed -35,260.00 -35,260.00 0.00 Variable selling and administrative expenses Total costs Income (loss)

Explanation / Answer

If alternative 2 is selected rather than alternative 1 than it will result in loss of $29630 and therefore if alternative 1 is selected it will result in income of $29630.

Therefore, product TS-20 should be continued since it provide more income than if the product is discontinued

Continue product TS-20 Discontinue product TS-20 Differential effect on income Alternative 1 Alternative 2 Alternative 2 Revenue 102190 0 -102190 Costs: Variable cost of goods sold -51100 0 51100 Fixed -35260 -35260 0 Variable selling & administrative expense -21460 0 21460 Total costs -107820 -35260 72560 Income (Loss) -5630 -35260 -29630

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