Question

om/ilm/takeAssigen design ..HVURUT yun g eBook Show Me How Calculator Discontinue a Segment Product Tango has revenue of $1,150,000, variable cost of goods sold of $850,000, variable selling expenses of $275,000, and fixed costs of $125,000, creating an operating loss of $(100,000). a. Prepare a differential analysis as of February 13 to determine if Product Tango should be continued (Alternative 1) or discontinued (Alternative 2), assuming fixed costs are unaffected by the decision. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Continue Product Tango (Alt. 1) or Discontinue Product Tango (Alt. 2) February 13 Continue Discontinue Differential Product Product Effects Tango Tango (Alternative 2) (Alternative 1) (Alternative 2) Revenues $ 1,150,000 $ 0 $ 1,150,000 Costs: Variable cost of goods sold 850,000 V 0 0 x Vanable selling and admin. expenses -275,000 ✓ Fixed costs -125,000 125,000 V Profit (Loss) 5 .100,000 ✓ S -125,000 $ -25,000 Feedback Check My Work For continue and discontinue alternatives subtract the costs from the revenue. Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 1 from alternative 2.

Answer 1

Answer:

	Continue Product T(Alternative 1)	Discontinue Product T(Alternative 2)	Differential effect on income(Alternative 2)
Revenues	11,50,000	-	-11,50,000
Costs:
Variable cost of goods sold	-8,50,000	-	8,50,000
Variable selling and admin. Expenses	-2,75,000	-	2,75,000
Fixed costs	-1,25,000	-1,25,000	-
Income(loss)	-1,00,000	-1,25,000	-25,000
Note: Costs can alternatively be written with a minus sign

Differential Analysis
Make Bottles (Alt 1) or Buy Bottles (Alt 2)
31-Jul
Particulars	Make Bottles (Alt 1)	Buy Bottles (Alt 2)	Differential effect on income (Alt 2)
Sales price	0	0	0
Unit Costs:
Purchase price	$0.00	36	36
Freight	$0.00	3	3
Variable costs	43	0	-43
Fixed factory overhead	12	12	0
Income (Loss)	-55	-51	4
Solution b:
As there is financial advantage of $4 per unit for buying alternative, therefore company should buy the bottles.