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 16% of the cost of goods sold and 44% 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, 2014, to determine if Cups should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter zero "0".

Differential Analysis

Continue Cups (Alt. 1) or Discontinue Cups (Alt. 2)

December 31, 2014

Continue Cups (Alternative 1)

Discontinue Cups (Alternative 2)

Differential Effect on Income (Alternative 2)

Revenues

$  

$  

$  

Costs:

Variable cost of goods sold

  

  

  

Variable selling and admin. expenses

  

  

  

Fixed costs

  

  

  

Income (Loss)

$  

$  

$  

b. Should the Cups line be retained?
SelectYesNoCorrect 1 of Item 2

Suffolk China Ware Company
Product-Line Income Statement
For the Month Ended December 31, 2014 Bowls Plates Cups Sales $64,600 $88,500 $27,800 Cost of goods sold 27,000 33,400 15,700 Gross profit $37,600 $55,100 $12,100 Selling and administrative expenses 29,500 34,800 15,800 Income from operations $8,100 $20,300 $(3,700)

Explanation / Answer

Workings: Suffolk China Ware Company Product-Line Income Statement For the Month Ended December 31, 2014 Bowls Plates Cups Sum of all 3    - cups Sales 64600 88500 27800 180900 153100 Cost of goods sold 27000 33400 15700 76100 60400 Gross profit 37600 55100 12100 104800 92700 Selling and administrative expenses 29500 34800 15800 80100 64300 Income from operations 8100 20300 -3700 24700 28400 Fixed costs (16%*COGS)+ 4320 5344 2512 12176                         (44%*S&A) 12980 15312 6952 35244 47420 Variable costs (84%*COGS)+ 22680 28056 13188 63924                               (56%*S&A) 16520 19488 8848 44856 Differential Analysis Continue Cups (Alt. 1) or Discontinue Cups (Alt. 2) December 31, 2014 Continue Cups (Alternative 1) Discontinue Cups (Alternative 2) Differential Effect on Income (Alternative 2) Revenues 180900 153100 -27800 Costs: Variable cost of goods sold 63924 50736 -13188 Variable selling and admin. expenses 44856 36008 -8848 Fixed costs 47420 47420 0 Income (Loss) 24700 18936 -5764 b. Should the Cups line be retained? YES.

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