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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?

Homework Answers

Answer #1
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%)
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