Question

Differential Analysis for a Discontinued Product The condensed product-line income statement for Rhinebeck Company for the month of October is as follows: Rhinebeck Company Product-Line Income Statement For the Month Ended October 31 Hats Gloves Mufflers Sales $65,700 $89,300 $26,400 Cost of goods sold (26,000) (33,600) (15,700) Gross profit $39,700 $55,700 $10,700 Selling and administrative expenses (29,400) (35,800) (14,500) Operating income (loss) $10,300 $19,900 $(3,800) Fixed costs are 12% of the cost of goods sold and 42% of the selling and administrative expenses. Rhinebeck Company assumes that fixed costs would not be materially affected if the Gloves line were discontinued. a. Prepare a differential analysis dated October 31 to determine if Mufflers should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Continue (Alt. 1) or Discontinue (Alt. 2) Mufflers October 31 Continue Mufflers (Alternative 1) Discontinue Mufflers (Alternative 2) Differential Effects (Alternative 2) Revenues $ 26,400 $ 0 $ 26,400 Costs: Variable cost of goods sold 0 Variable selling and admin. expenses 0 Fixed costs 0 Profit (Loss) $ -3,800 $ $

Answer 1