Differential Analysis for a Discontinued Product The condensed product-line inco

Question

Differential Analysis for a Discontinued Product

The condensed product-line income statement for Suffolk China Ware Company for the month of December is as follows:

Fixed costs are 12% of the cost of goods sold and 38% of the selling and administrative expenses. Suffolk China Ware assumes that fixed costs would not be materially affected if the Cups line were discontinued.

a. Prepare a differential analysis dated December 31, 2016, to determine if Cups should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter zero "0". Use a minus sign to indicate a loss.

b. Should the Cups line be retained?

Suffolk China Ware Company
Product-Line Income Statement
For the Month Ended December 31, 2016 Bowls Plates Cups Sales $65,600 $89,200 $27,500 Cost of goods sold 26,800 33,800 14,800 Gross profit $38,800 $55,400 $12,700 Selling and administrative expenses 29,300 35,900 14,400 Income from operations $9,500 $19,500 $(1,700)

Explanation / Answer

cost of goods sold   variable (14800*88%) 13024 fixed (14800*12%) 1776 cost of goods sold   14800 Selling and administrative process Variable (14,400*62%) 8928 fixed (14400*38%) 5472 Selling and administrative process 14400 Differential analysis continue discontnue Differetial cups cups Effect revenues 182,300 154800 -27,500 costs variable cost of goods sold 66,352 53328 13,024 variable selling & adm expense 49,352 40424 8,928 fixed costs 39296 39,296 0 income(l0ss) 27,300 21,752 -5,548 b) yes

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