Question

Instructions Product J is one of the many products manufactured and sold by Oceanside Company. An income statement by product line for the past year indicated a net loss for Product J of $12.250. This net loss resulted from sales of $280,000. cost of goods sold of $188,500, and operating expenses of $85,750. It is estimated that 30% of the cost of goods sold represents fixed factory overhead costs and that 40% of the operating expense is fixed. If Product J is retained, the revenue, costs, and expenses are not expected to change significantly from those of the current year. Because of the large number products manufactured, the total fixed costs and expenses are not expected to decline significantly if Product J is discontinued. Required: Prepare a differential analysis report dated February 8 of the current year, on the proposal to discontinue Product. Use a minus sign to indicate numbers to be subtracted or negative numbers. If there is no amount or an amount is zero, enter "0". Below the report, indicate whether Oceanside Company should continue or discontinue to manufacture Product Differential Analysis Prepare a differential analysis report, dated February 8 of the current year, on the proposal to discontinue Product J. Use a minus sign to indicate numbers to be subtracted or negative numbers. If there is no amount or an amount is zero, enter "O". Below the report, indicate whether Oceanside Company should continue or discontinue to manufacture Product J. Differential Analysis Continue Product J (Alternative 1) or Discontinue Product (Alternative 2) February 8 Continue Product Discontinue Product (Alternative 1) (Alternative 2) Differential Effect J on Income (Alterative 2) 3 Revenues Costs: Variable Fixed 7 Total costs Income (loss) Oceanside Company should O continue the manufacturing of Product discontinue the manufacturing of Product

Answer 1

Revenues Differential Analysis Continue Products Discontinue Products Differential Effect on Income (Alternative 1) (Alternative 2) (Alternative 2 = Alter. 2- Alter. 1) $260,000.00 $0.00 -$260,000.00 $0.00 $182,000.00 $0.00 -$182,000.00 $90,250.00 $90,250.00 $0.00 $272,250.00 $90,250.00 -$182,000.00 Costs : Variable Fixed Total Cost Income(Loss) -$12,250.00 $90,250.00 $78,000.00

Working Note: Variable Cost = (Cost of Goods Sold * 70%) + (Operating Expenses * 60%) = ($186,500 * 70%) + ($85,750 * 60%) $182,000.00 Fixed Cost = (Cost of Goods Sold * 30%) + (Operating Expenses * 40%) = ($186,500 * 30%) + ($85,750 * 40%) $90,250.00 =

Oceanside Company should continue to manufacturing of Product J because if company dicontinue the manufacturing of Product J then their losses will increase by $78,000 that's why it is benefitial for the company to continue the manufacturing of Product J.