Question

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)	$	$	$

Answer 1

Answer-a)-

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