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 |
1 |
Bowls |
Plates |
Cups |
|
2 |
Sales |
$70,960.00 |
$105,450.00 |
$31,760.00 |
3 |
Cost of goods sold |
32,990.00 |
42,680.00 |
16,710.00 |
4 |
Gross profit |
$37,970.00 |
$62,770.00 |
$15,050.00 |
5 |
Selling and administrative expenses |
27,350.00 |
42,530.00 |
16,670.00 |
6 |
Income from operations |
$10,620.00 |
$20,240.00 |
$(1,620.00) |
Fixed costs are 30% of the cost of goods sold and 50% 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 March 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. |
a | |||
Continue Cups (Alternative 1) | Discontinue Cups (Alternative 2) | Differential Effect on Income (Alternative 2) | |
Revenues | 31760 | 0 | -31760 |
Costs: | |||
Variable cost of goods sold | -11697 | 0 | 11697 |
Variable selling and administrative expenses | -8335 | 0 | 8335 |
Fixed costs | -13348 | -13348 | 0 |
Income (Loss) | -1620 | -13348 | -11728 |
b | |||
The cups line should be retained. As indicated by the differential analysis, the income will decrease by $11728 if the Cups line is discontinued. |
Workings: | ||
Variable cost of goods sold | 11697 | =16710*(1-30%) |
Variable selling and admin. expenses | 8335 | =16670*(1-50%) |
Fixed costs | 13348 | =(16710*30%)+(16670*50%) |
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