Product TS-20 has revenue of $103,040, variable cost of goods sold of $51,070, variable selling expenses of $21,890, and fixed costs of $36,440, creating a loss from operations of $6,360.
Required: | |
1. | Prepare a differential analysis as of September 12 to determine if Product TS-20 should be continued (Alternative 1) or discontinued (Alternative 2), assuming fixed costs are unaffected by the decision. Refer to the list of Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required. |
2. | Determine if Product TS-20 should be continued (Alternative 1) or discontinued (Alternative 2). |
Ans:
Continue product TS-20 |
Discontinue product TS-20 |
Differential effect on income |
|
Alternative 1 |
Alternative 2 |
Alternative 2 |
|
Revenue |
103,040 |
0 |
-103,040 |
Costs: |
|||
Variable cost of goods sold |
-51,070 |
0 |
51,070 |
Fixed |
-36,440 |
-36,440 |
0 |
Variable selling & administrative expense |
-21,890 |
0 |
21890 |
Total costs |
-109400 |
-35260 |
72560 |
Income (Loss) |
-6360 |
-36,440 |
-30,080 |
2.Therefore, product TS-20 should be continued since it provide more income than if the product is discontinued
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