Question

# Differential Analysis for a Discontinued Product The condensed product-line income statement for Porcelain Tableware Company for...

Differential Analysis for a Discontinued Product

The condensed product-line income statement for Porcelain Tableware Company for the month of May is as follows:

 Porcelain Tableware Company Product-Line Income Statement For the Month Ended May 31 Bowls Plates Cups Sales \$64,400 \$89,800 \$27,000 Cost of goods sold 26,900 32,700 14,900 Gross profit \$37,500 \$57,100 \$12,100 Selling and administrative expenses 29,400 34,000 15,300 Income from operations \$8,100 \$23,100 \$(3,200)

Fixed costs are 15% of the cost of goods sold and 42% of the selling and administrative expenses. Porcelain Tableware assumes that fixed costs would not be materially affected if the Cups line were discontinued.

a. Prepare a differential analysis dated May 31 to determine if Cups should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

 Differential Analysis Continue Cups (Alt. 1) or Discontinue Cups (Alt. 2) For the Month Ended May 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) \$ \$ \$

 PORCELAIN TABLEWARE COMPANY DIFFERENTIAL ANALYSIS FOR THE MONTH ENDED MAY 31 PARTICULARS CONTINUE CUPS ELIMINATE CUPS NET INCOME INCREASE (DECREASE) \$ \$ \$ Sales 27000 0 -27000 Less- Variable Costs Cost of goods sold 14900*85%= \$12665 0 -12665 Selling and adminstrative expenses 15300*58%= \$8874 0 -8874 Total Variable costs 21539 0 -21539 Contribution margin 5461 0 -5461 Less- Fixed costs Cost of goods sold 14900*15%= \$2235 2235 0 Selling and adminstrative expenses 15300*42%= \$6426 6426 0 Total Fixed costs 8661 8661 0 Net Income (Loss) -3200 -8661 5461