The condensed product-line income statement for Dish N\' Dat Company for the mon

Question

The condensed product-line income statement for Dish N' Dat Company for the month of March is as follows: Fixed costs are 15% of the cost of goods sold and 40% of the selling and administrative expenses. Dish N' Dat assumes that fixed costs would not be materially affected if the Cups line were discontinued. a. Prepare a differential analysis dated March 31, 2014, to determine if Cups should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter zero "0". b. Should the Cups line be retained?

Explanation / Answer

Differential Analysis of Continue or not coninue cups Mar 31, 2014

(Alternative 1) (Alternative 2)

Continue Cups Discontinue Cups Diffenetial effect on Alt 2

Revenues 208000 176700 -31300   

Costs:

Variable cost of good sold 77945 63665 -14280

Variable selling and Admin Overheads 52140 42120 -10020

Fixed Costs 48515 48515 0

Income (Loss) 29400 22400 -7000

Notes:

1. Analysis has been prepared based on the understanding that all the products are selling in all the location by the company and no location is product specific store. Fixed costs of the Dish N Dat company would not reduce just by dropping one product of cups in stores, based on the above analysis Cups product need to be continued otherwise the company profit effect by $ 7000

2. Continuing Cups under Alternative 1:

3. Discontinuing Cups under Alternative 2:

Bowls Plates Cups Total Sales 71000 105700 31300 208000 Variable Cost: Cost of Good sold (85%) (27710) (35955) (14280) (77945) Selling & Distribution expenses (60%) (16440) (25680) (10020) (52140) Contribution 26850 44065 7000 77915 Fixed costs Cost of Good sold (15%) (4890) (6345) (2520) (13755) Selling & Distribution expenses (40%) (10960) (17120) (6680) (34760) Income from Operation 11000 20600 (2200) 29400

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