Question

The condensed product-line income statement for Suffolk China Ware Company is as follows: SUFFOLK CHINA WARE COMPANY Product-Line Income Statement Bowls Plates Cups Sales $654,000 $894,000 $267,000 Cost of goods sold (260,000) (328,000) (156,000) Gross profit $394,000 $566,000 $111,000 Selling and administrative expenses (284,000) (343,000) (155,000) Operating income (loss) $110,000 $223,000 $(44,000) Fixed costs are 45% of the cost of goods sold and 15% of the selling and administrative expenses. Suffolk China Ware assumes that fixed costs would not be significantly affected if the Cups line were discontinued. a. Prepare a differential analysis report for all three products. SUFFOLK CHINA WARE COMPANY Product Income Differential Analysis Report Bowls Plates Cups Differential revenue from monthly sales: $ $ $ Differential costs of monthly sales: $ $ $ $ $ $ Monthly differential income from sales $ $ $

Answer 1

a
	Bowls	Plates	Cups
Differential revenue from monthly sales:
Revenue from sales	654000	894000	267000
Differential costs of monthly sales:
Variable cost of goods sold	143000	180400	84150
Variable selling and administrative expenses	241400	291550	131750
	384400	471950	215900
Monthly differential income from sales	269600	422050	51100
Workings:
Variable cost of goods sold:
Bowls = 260000*(1-45%)=$143000
Plates = 328000*(1-45%)=$180400
Cups = 156000*(1-45%)=$84150
Variable selling and administrative expenses:
Bowls = 284000*(1-15%)=$241400
Plates = 343000*(1-15%)=$291550
Cups = 155000*(1-15%)=$131750