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 \$64,700 \$90,400 \$26,700 Cost of goods sold 27,000 33,400 14,700 Gross profit \$37,700 \$57,000 \$12,000 Selling and administrative expenses 29,700 34,600 14,500 Income from operations \$8,000 \$22,400 \$(2,500)

Fixed costs are 12% 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 \$fill in the blank a77d910bb021015_1 \$fill in the blank a77d910bb021015_2 \$fill in the blank a77d910bb021015_3 Costs: Variable cost of goods sold fill in the blank a77d910bb021015_4 fill in the blank a77d910bb021015_5 fill in the blank a77d910bb021015_6 Variable selling and admin. expenses fill in the blank a77d910bb021015_7 fill in the blank a77d910bb021015_8 fill in the blank a77d910bb021015_9 Fixed costs fill in the blank a77d910bb021015_10 fill in the blank a77d910bb021015_11 fill in the blank a77d910bb021015_12 Income (Loss) \$fill in the blank a77d910bb021015_13 \$fill in the blank a77d910bb021015_14 \$fill in the blank a77d910bb021015_15

b. Should the Cups line be retained?

Differential analysis

continue cups(alt 1) or Discontinue cups (alt 2)

December 31,2012

 continue cups (alt 1) Discontinue cups (alt 2) Differential effect on income(alt 2) Revenues \$26,700 0 \$26,700 costs variable cost of goods sold 12,936 1 0 12,936 variable selling and admin expenses 8,555 2 0 8,555 fixed costs 7,709 7,709 0 income (loss) (2,500) \$7,709 \$5,209

1\$14,700 × (1 – 12%)

2\$14,500 × (1 – 41%)

3(\$14,700 × 12%) + (\$14,500 × 41%)

b.

The Cups line should be retained. As indicated by the differential analysis in part (a), the income would decrease by \$5,209 if the Cups line were discontinued.