Question

# Differential Analysis for a Discontinued Product The condensed product-line income statement for Dish N’ Dat Company...

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 \$64,600 \$89,200 \$26,700 Cost of goods sold 25,300 31,800 15,700 Gross profit \$39,300 \$57,400 \$11,000 Selling and administrative expenses 29,100 34,600 15,300 Income from operations \$10,200 \$22,800 \$(4,300)

Fixed costs are 16% of the cost of goods sold and 41% 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) \$ \$ \$

b. Should the Cups line be retained?

 Continue Cups (Alternative 1) Discontinue Cups (Alternative 2) Differential Effect on Income (Alternative 2) Revenues 26700 0 -26700 Costs: Variable cost of goods sold -13188 0 13188 Variable selling and admin. expenses -9027 0 9027 Fixed costs -8785 -8785 0 Income (Loss) -4300 -8785 -4485 b Cups line should be retained Workings: Variable cost of goods sold -13188 =15700*(1-16%) Variable selling and admin. expenses 9027 =15300*(1-41%) Fixed costs 8785 =(15700*16%)+(15300*41%)