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 Dish N’ Dat Company for the month of March is as follows:

Fixed costs are 16% of the cost of goods sold and 35% of the selling and administrative expenses. Dish N’ Dat assumes that fixed costs would not be materially affected if the Cups line were discontinued.

a. Prepare a differential analysis dated March 31 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?

Dish N’ Dat Company
Product-Line Income Statement
For the Month Ended March 31 Bowls Plates Cups Sales $65,600 $89,300 $26,100 Cost of goods sold 26,100 33,300 15,800 Gross profit $39,500 $56,000 $10,300 Selling and administrative expenses 30,000 35,700 15,200 Income from operations $9,500 $20,300 $(4,900)

Explanation / Answer

a. Differential Analysis

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

March 31

Fixed costs will be incurred irrespective of cups being continued or discontinued.

b. Yes, the cups should be retained because in that case, income is more. If the cups are discontinued, Income comes out to be less.

DETAILS ALTERNATIVE 1 ALTERNATIVE 2 DIFFERENTIAL EFFECT ON INCOME Revenues 181,000 154,900 26,100 Costs: Variable cost of goods sold (84% of COGS) 63,168 49,896 13,272 Variable selling and administrative expenses (65% of S&D expenses) 52,585 42,705 9,880 Fixed costs (16% of COGS + 35% of S&D expenses) 40,347 40,347 nil Income (loss) 12,238 2,358 (9,880)

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.