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) $ $ $

Homework Answers

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
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