Question

roduct A has revenue of $195,000, variable cost of goods sold of $115,700, variable selling expenses of $33,500, and fixed costs of $60,900, creating a loss from operations of $15,100.

Prepare a differential analysis as of May 9, to determine whether Product A should be continued (Alternative 1) or discontinued (Alternative 2), assuming fixed costs are unaffected by the decision. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential Analysis
Continue Product A (Alt. 1) or Discontinue Product A (Alt. 2)
May 9
	Continue Product A (Alternative 1)	Discontinue Product A (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues	$	$	$
Costs:
Variable cost of goods sold
Variable selling expenses
Fixed costs
Income (Loss)	$	$	$

Determine if Product A should be continued (Alternative 1) or discontinued (Alternative 2).

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Make or Buy

A restaurant bakes its own bread for a cost of $168 per unit (100 loaves), including fixed costs of $36 per unit. A proposal is offered to purchase bread from an outside source for $97 per unit, plus $8 per unit for delivery.

Prepare a differential analysis dated July 7 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the bread, assuming that fixed costs are unaffected by the decision. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential Analysis
Make Bread (Alt. 1) or Buy Bread (Alt. 2)
July 7
	Make Bread (Alternative 1)	Buy Bread (Alternative 2)	Differential Effect on Income (Alternative 2)
Sales price	$0	$0	$0
Unit Costs:
Purchase price	$	$	$
Delivery
Variable costs
Fixed factory overhead
Income (Loss)	$	$	$

Determine whether the company should make (Alternative 1) or buy (Alternative 2) the bread.

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Replace Equipment

A machine with a book value of $245,900 has an estimated six-year life. A proposal is offered to sell the old machine for $217,400 and replace it with a new machine at a cost of $282,400. The new machine has a six-year life with no residual value. The new machine would reduce annual direct labor costs from $50,900 to $40,700.

Prepare a differential analysis dated October 3 on whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential Analysis
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
October 3
	Continue with Old Machine (Alternative 1)	Replace Old Machine (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues:
Proceeds from sale of old machine	$	$	$
Costs:
Purchase price
Direct labor (6 years)
Income (Loss)	$	$	$

Should the company continue with the old machine (Alternative 1) or replace the old machine (Alternative 2)?

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Product A is produced for $3.58 per pound. Product A can be sold without additional processing for $4.02 per pound or processed further into Product B at an additional cost of $0.45 per pound. Product B can be sold for $4.32 per pound.

Prepare a differential analysis dated November 15 on whether to sell A (Alternative 1) or process further into B (Alternative 2). If required, round your answers to the nearest whole dollar. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential Analysis
Sell Product A (Alt. 1) or Process Further into Product B (Alt. 2)
November 15
	Sell Product A (Alternative 1)	Process Further into Product B (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues, per unit	$	$	$
Costs, per unit
Income (Loss), per unit	$	$	$

Should Product A be sold (Alternative 1) or processed further into Product B (Alternative 2)?

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Accept Business at Special Price

Product D is normally sold for $41 per unit. A special price of $31 is offered for the export market. The variable production cost is $23 per unit. An additional export tariff of 13% of revenue must be paid for all export products. Assume that there is sufficient capacity for the special order.

Prepare a differential analysis dated March 16, on whether to reject (Alternative 1) or accept (Alternative 2) the special order. If required, round your answers to two decimal places. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential Analysis
Reject Order (Alt. 1) or Accept Order (Alt. 2)
March 16
	Reject Order (Alternative 1)	Accept Order (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues, per unit	$	$	$
Costs:
Variable manufacturing costs, per unit
Export tariff, per unit
Income (Loss), per unit	$	$	$

Should the special order be rejected (Alternative 1) or accepted (Alternative 2)?

Answer 1

Solution 1

Differential Analysis
Continue Product A (Alt. 1) or Discontinue Product A (Alt. 2)
May-09
	Continue Product A (Alternative 1)	Discontinue Product A (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues	195,000	0	195,000
Costs:
Variable cost of goods sold	115,700	0	115,700
Variable selling and admin. Expenses	33,500	0	33,500
Fixed costs	60,900	60,900	0
Income (Loss)	-15,100	-60,900	45,800

Product A should be continued as continuing will increase loss by $45,800