Question

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 $648,000 $904,000 $269,000 Cost of goods sold (253,000) (336,000) (154,000) Gross profit $395,000 $568,000 $115,000 Selling and administrative expenses (300,000) (356,000) (146,000) Operating income (loss) $95,000 $212,000 $(31,000) Fixed costs are 41% of the cost of goods sold and 16% of the selling and administrative expenses. Porcelain Tableware assumes that fixed costs would not be significantly affected if the Cups line were discontinued.

Answer 1

Differential Analysis Report
	Bowls	Plates	Cups
Revenue from Sales	$       6,48,000	$       9,04,000	$       2,69,000
Differential costs of monthly sales
Variable cost of goods Sold	$       1,49,270	$       1,98,240	$           90,860
Variable Selling and administration	$       2,52,000	$       2,99,040	$       1,22,640
Total Variable Expense	$       4,01,270	$       4,97,280	$       2,13,500
Monthly differential Income from Sales	$       2,46,730	$       4,06,720	$           55,500

Notes

Variable COST and Variable Selling & Administration are calculated in the following manner:

	Bowls	Plates	Cups
Cost of Goods Sold	$       2,53,000	$       3,36,000	$       1,54,000
Fixed Costs 41% of COGS	$       1,03,730	$       1,37,760	$           63,140
Variable COGS
(Total COGS - Fixed Costs)	$       1,49,270	$       1,98,240	$           90,860
Total Selling and administration	$       3,00,000	$       3,56,000	$       1,46,000
Fixed costs 16% of Selling & Admin	$           48,000	$           56,960	$           23,360
Variable Selling and administration
(Total Selling & Admin Exp. - Fixed Costs)	$       2,52,000	$       2,99,040	$       1,22,640

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