Product J is one of the many products manufactured and sold by Oceanside Company
ID: 2536814 • Letter: P
Question
Product J is one of the many products manufactured and sold by Oceanside Company. An income statement by product line for the past year indicated a net loss for Product J of $12,250. This net loss resulted from sales of $260,000, cost of goods sold of $186,500, and operating expenses of $85,750. It is estimated that 30% of the cost of goods sold represents fixed factory overhead costs and that 40% of the operating expense is fixed. If Product J is retained, the revenue, costs, and expenses are not expected to change significantly from those of the current year. Because of the large number of products manufactured, the total fixed costs and expenses are not expected to decline significantly if Product J is discontinued.
Required:
Prepare a differential analysis report, dated February 8 of the current year, on the proposal to discontinue Product J. Use a minus sign to indicate numbers to be subtracted or negative numbers. If there is no amount or an amount is zero, enter "0". Below the report, indicate whether Oceanside Company should continue or discontinue to manufacture Product J.
Differential Analysis
Continue Product J (Alternative 1) or Discontinue Product J (Alternative 2)
February 8
1
Continue Product J
Discontinue Product J
Differential Effect on Income
2
(Alternative 1)
(Alternative 2)
(Alternative 2)
3
Revenues
4
Costs:
5
Variable
6
Fixed
7
Total costs
8
Income (loss)
In conclusion, Oceanside Company should pick one
A. continue the manufacturing of Product J
B. discontinue the manufacturing of Product J
Prepare a differential analysis report, dated February 8 of the current year, on the proposal to discontinue Product J. Use a minus sign to indicate numbers to be subtracted or negative numbers. If there is no amount or an amount is zero, enter "0". Below the report, indicate whether Oceanside Company should continue or discontinue to manufacture Product J.
Differential Analysis
Continue Product J (Alternative 1) or Discontinue Product J (Alternative 2)
February 8
1
Continue Product J
Discontinue Product J
Differential Effect on Income
2
(Alternative 1)
(Alternative 2)
(Alternative 2)
3
Revenues
4
Costs:
5
Variable
6
Fixed
7
Total costs
8
Income (loss)
In conclusion, Oceanside Company should pick one
A. continue the manufacturing of Product J
B. discontinue the manufacturing of Product J
Explanation / Answer
1 2 3=2-1 CONTINUE DISCONTINUE DIFFERNCE PRODUCT J PRODUCT J A REVENUE (SALES) 260000 0 -260000 COSTS: B VAARIABLE i COST OF GOODS SOLD 130550 0 -130550 186500*(100-30)/100 ii OPERATING EXPENSES 51450 0 -51450 85750*(100-40)/100 C CONTIBUTION (A-B) 78000 0 -78000 D FIXED i COST OF GOODS SOLD 55950 55950 0 186500*30/100 ii OPERATING EXPENSES 34300 34300 0 85750*40/100 TOTAL COSTS (B+D) 272250 90250 -182000 INCOME/(LOSS) (C-D) -12250 -90250 -78000 PRODUCT J SHOULD BE CONTINUED AS DIFFERNTIAL EFFECT IS NEGATIVE NOTE: WHENEVER CONTRIBUTION IS POSITIVE AND IT IS GIVEN THAT FIXED EXPENSES WILL NOT CHANGE THE DIFFERENTIAL EFFECT WILL BE NEGATIVE AND THE AMOUNT OF DIFFERNTIAL LOSS WILL BE EXACTLY AMOUNT OF CONTRIBUTION FROM CONTINUING PRODUCT (78000 HERE)
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