Question

Discontinue a Segment

Product T has revenue of $193,800, variable cost of goods sold of $115,800, variable selling expenses of $33,800, and fixed costs of $59,800, creating a loss from operations of $15,600.

Prepare a differential analysis as of May 9, to determine whether Product T 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 T (Alt. 1) or Discontinue Product T (Alt. 2)
May 9
	Continue Product T (Alternative 1)	Discontinue Product T (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 T should be continued (Alternative 1) or discontinued (Alternative

Answer 1

Differential analysis
			Continue	Discontinue	Differential
			Product	Product	effect on income
Revenue			1,93,800	0	-1,93,800
Cost:
Variable cost of goods sold	-1,15,800	0	1,15,800
Variable selling expense	-33,800	0	33,800
Fixed cost			-59,800	-59,800	0
Income /(Loss)		-15,600	-59,800	-44,200
Net financial disadvantage of Discontinuance is ($44200).
Hence, the Product T shall continue