Differential Analysis Report for a Discontinued Product
The condensed product-line income statement for Porcelain Tableware Company is as follows:
PORCELAIN TABLEWARE COMPANY Product-Line Income Statement |
||||||||
Bowls | Plates | Cups | ||||||
Sales | $658,000 | $887,000 | $262,000 | |||||
Cost of goods sold | (262,000) | (320,000) | (148,000) | |||||
Gross profit | $396,000 | $567,000 | $114,000 | |||||
Selling and administrative expenses | (291,000) | (347,000) | (145,000) | |||||
Operating income (loss) | $105,000 | $220,000 | $(31,000) |
Fixed costs are 43% of the cost of goods sold and 17% of the selling and administrative expenses. Porcelain Tableware assumes that fixed costs would not be significantly affected if the Cups line were discontinued.
a. Prepare a differential analysis report for all three products.
PORCELAIN TABLEWARE COMPANY | |||
Product Income | |||
Differential Analysis Report | |||
Bowls | Plates | Cups | |
Differential revenue from monthly sales: | |||
$ | $ | $ | |
Differential costs of monthly sales: | |||
$ | $ | $ | |
$ | $ | $ | |
Monthly differential income from sales | $ | $ | $ |
b. Which of the following statements about the
Cups line is true?
Porcelain Tableware Company | ||||
Product Income | ||||
Differential analysis Report | ||||
Bowls | Plates | Cups | ||
Differential revenue from monthly sales | ||||
Revenues from sales | $ 6,58,000 | $ 8,87,000 | $ 2,62,000 | |
Differential cost from monthly sales | ||||
Variable cost of goods sold | $ 1,49,340 | $ 1,82,400 | $ 84,360 | |
Variable selling and administrative cost | $ 2,41,530 | $ 2,88,010 | $ 1,20,350 | |
Total variable costs | $ 3,90,870 | $ 4,70,410 | $ 2,04,710 | |
Monthly differential Income from sales | $ 2,67,130 | $ 4,16,590 | $ 57,290 | |
Bowls | Plates | Cups | ||
(i) | Total cost of goods sold | $ 2,62,000 | $ 3,20,000 | $ 1,48,000 |
(ii) = (i) X 43% | Fixed cost of goods sold | $ 1,12,660 | $ 1,37,600 | $ 63,640 |
(i) - (ii) | Variable cost of goods sold | $ 1,49,340 | $ 1,82,400 | $ 84,360 |
Bowls | Plates | Cups | ||
(i) | Total selling and administrative cost | $ 2,91,000 | $ 3,47,000 | $ 1,45,000 |
(ii) = (i) X 17% | Fixed selling and administrative cost | $ 49,470 | $ 58,990 | $ 24,650 |
(i) - (ii) | Variable selling and administrative cost | $ 2,41,530 | $ 2,88,010 | $ 1,20,350 |
Differential Analysis Report for a Discontinued Product The condensed product-line income statement for Porcelain Tableware Company...
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