Question

Differential Analysis for a Discontinued Product

The condensed product-line income statement for Dish N’ Dat Company for the month of March is as follows:

Dish N’ Dat Company Product-Line Income Statement For the Month Ended March 31
	Bowls			Plates			Cups
Sales	$64,700			$88,700			$27,900
Cost of goods sold	26,000			32,900			15,000
Gross profit	$38,700			$55,800			$12,900
Selling and administrative expenses	28,800			34,400			14,800
Income from operations	$9,900			$21,400			$(1,900)

Fixed costs are 13% of the cost of goods sold and 41% of the selling and administrative expenses. Dish N’ Dat assumes that fixed costs would not be materially affected if the Cups line were discontinued.

a. Prepare a differential analysis dated March 31 to determine if Cups should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". Use a minus sign to indicate a loss.

Differential Analysis
Continue Cups (Alt. 1) or Discontinue Cups (Alt. 2)
March 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)	$	$	$

b. Should the Cups line be retained?

Answer 1

a. Prepare a differential analysis dated March 31 to determine if Cups should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". Use a minus sign to indicate a loss.

Differential Analysis
Continue Cups (Alt. 1) or Discontinue Cups (Alt. 2)
March 31
	Continue Cups (Alternative 1)	Discontinue Cups (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues	$27900	$0	-27900
Costs:
Variable cost of goods sold	-13050	0	13050
Variable selling and admin. expenses	-8732	0	8732
Fixed costs	-8018	-8018	0
Income (Loss)	-1900	-8018	-6118

b. Should the Cups line be retained?

Yes, Cups line should be retained