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
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 | ||||||
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