Question

The condensed product-line income statement for Dish N’ Dat Company for the month of May is as follows:

Dish N’ Dat Company

Product-Line Income Statement

For the Month Ended May 31

1		Bowls	Plates	Cups
2	Sales	$71,200.00	$105,270.00	$31,400.00
3	Cost of goods sold	33,090.00	42,230.00	16,610.00
4	Gross profit	$38,110.00	$63,040.00	$14,790.00
5	Selling and administrative expenses	27,340.00	42,800.00	16,870.00
6	Income from operations	$10,770.00	$20,240.00	$(2,080.00)

Fixed costs are 20% of the cost of goods sold and 30% of the selling and administrative expenses. Dish N’ Dat assumes that fixed costs would not be materially affected if the Cups line were discontinued.

	Required:
A.	Prepare a differential analysis dated May 31 to determine if Cups should be continued (Alternative 1) or discontinued (Alternative 2). Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.
B.	Should the Cups line be retained? Explain.

LabelsCash flows from investing activitiesCostsAmount DescriptionsFixed costsGain on sale of investmentsIncome (loss)Loss on sale of investmentsRevenuesTotal costsVariable cost of goods soldVariable selling and administrative expensesFor the Month Ended May 31

A. Prepare a differential analysis dated May 31 to determine if Cups should be continued (Alternative 1) or discontinued (Alternative 2). Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.

Score: 2/107

Differential Analysis

Continue Cups (Alternative 1) or Discontinue Cups (Alternative 2)

For the Month Ended May 31

1		Continue Cups	Discontinue Cups	Differential Effect on Income
2		(Alternative 1)	(Alternative 2)	(Alternative 2)
3
4	✔
5
6
7
8
9

B. Should the Cups line be retained? Explain.

No

Yes

Points:

1 / 1

As indicated by the differential analysis in part (A), the income willdecrease by---------------? if the Cups line is discontinued.

Answer 1

Differential Analysis

Continue Cups (Alternative 1) or Discontinue Cups (Alternative 2)

For the Month Ended May 31

1		Continue Cups	Discontinue Cups	Differential Effect on Income
2		(Alternative 1)	(Alternative 2)	(Alternative 2)
3	Sales	31400	0	-31400
4	Variable costs
5	Variable cost of goods sold	-13288	0	13288
6	Variable selling and administrative expense	-11809	0	11809
7	Contribution margin	6303	0	-6303
8	Fixed cost	-8383	-8383	0
9	Net income	-2080	-8383	-6303

B. Should the Cups line be retained? Explain.

Yes

Points:

1 / 1

As indicated by the differential analysis in part (A), the income will decrease by $6303 if the Cups line is discontinued.