The condensed product-line income statement for Porcelain Tableware Company for

Question

The condensed product-line income statement for Porcelain Tableware Company for the month of December is as follows:

Fixed costs are 13% of the cost of goods sold and 36% of the selling and administrative expenses. Porcelain Tableware 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.

Porcelain Tableware Company
Product-Line Income Statement
For the Month Ended December 31, 2016 Bowls Plates Cups Sales $65,800 $90,200 $26,500 Cost of goods sold 25,400 32,300 14,600 Gross profit $40,400 $57,900 $11,900 Selling and administrative expenses 30,000 35,500 15,600 Income from operations $10,400 $22,400 $(3,700)

Explanation / Answer

Continue Cups (Alternative 1) Discontinue Cups (Alternative 2) Differential Effect on Income Revenues 26500 0 -26500 Costs: Variable cost of goods sold -12702 0 12702 Variable selling and admin. expenses    -9984 0 9984 Fixed costs -7514 -7514 0 Income (Loss) -3700 -7514 -3814

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