E12-3 The condensed product-line income statement for Dinner Ware Company is as
ID: 2521819 • Letter: E
Question
E12-3 The condensed product-line income statement for Dinner Ware Company is as follows Differential analysis report for a discontinued product Dinner Ware Company Product-Line Income Statement Bowls Plates $1,500,000 $2,350,000 $975,000 1,400,000 600,000950,000 195,000 Cups Sales Cost of goods sold Gross profit Selling and administrative expenses Income (loss) from operations 900,000 780,000 270,000 700,000 300,000 S 330,000 250,000 $05,000 Fixed costs are 40% of the cost of goods sold and 18% of the selling and administrative expenses. Dinner Ware assumes that fixed costs would not be significantly affected if the Cups line were discontinued. a. Prepare a differential analysis report for all three products. b. Should the Cups line be retained? Explain.Explanation / Answer
E 12 - 3
a. Differential Analysis:
b. Discontinuing the cups line would result in a decrease of $ 261,000 in operating income. Hence, the cups line should be retained.
Retain Cups Discontinue Cups Increase / Decrease in Net Operating Income Sales 4,825,000 3,850,000 (975,000) Variable Cost of Goods Sold 1,848,000 1,380,000 468,000 Selling and Administrative Expenses 1,041,400 795,400 246,000 Contribution Margin 1,935,600 1,674,600 (261,000) Fixed Cost of Goods Sold 1,232,000 1,232,000 0 Selling and Administrative Expenses 228,600 228,600 0 Income ( loss) from operations 475,000 214,000 (261,000)Related Questions
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