Question

# Differential Analysis for a Discontinued Product The condensed product-line income statement for Dish N’ Dat Company...

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:

 Dish N’ Dat Company Product-Line Income Statement For the Month Ended March 31 Bowls Plates Cups Sales \$64,100 \$88,800 \$27,900 Cost of goods sold 25,900 33,100 14,300 Gross profit \$38,200 \$55,700 \$13,600 Selling and administrative expenses 30,300 34,300 15,700 Income from operations \$7,900 \$21,400 \$(2,100)

Fixed costs are 13% of the cost of goods sold and 44% 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 "0". Use a minus sign to indicate a loss.

 Differential Analysis Continue Cups (Alt. 1) or Discontinue Cups (Alt. 2) March 31 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?

a.

 Differential Analysis Continue Cups (Alt. 1) or Discontinue Cups (Alt. 2) Mar-31 Continue Cups (Alternative 1) Discontinue Cups (Alternative 2) Differential Effect on Income (Alternative 2) Revenues \$27,900 \$0 -\$27,900 Costs: Variable cost of goods sold (14300*87%) \$12,441 \$0 \$12,441 Variable selling and admin. Expenses (15700*56%) \$8,792 \$0 \$8,792 Fixed costs (14300*13%+15700*44%) \$8,767 \$8,767 \$0 Income (Loss) -\$2,100 -\$8,767 -\$6,667

b.

Yes, the Cups line should be retained.