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:

Dish N’ Dat Company Product-Line Income Statement For the Month Ended March 31
	Bowls			Plates			Cups
Sales	$64,700			$90,200			$27,900
Cost of goods sold	25,900			32,500			15,000
Gross profit	$38,800			$57,700			$12,900
Selling and administrative expenses	28,500			34,700			15,100
Income from operations	$10,300			$23,000			$(2,200)

Fixed costs are 15% of the cost of goods sold and 42% 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)	$	$	$

Answer 1

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	$27900	$0	-27900
Costs:
Variable cost of goods sold	-12750	0	12750
Variable selling and admin. expenses	-8758	0	8758
Fixed costs	-8592	-8592	0
Income (Loss)	-2200	-8592	-6392