Question

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

Answer 1

Answer:

It will generate a financial disadvantage for 44,065 dollar to discontinued the cup division. This division generates a positive contribution which, if discontinued will not help to absorp the common fixed cost fo the firm and move the burden entirely to Bowls Plates division making the profit to decrease.

Explanation:

$\left[\begin{array}{cccc}& Continued& Discontinued& Differential\\ sales&105700&0&(105700)\\ variable cost&-61635&0&61635\\ contribution&44065&0&(44065)\\ fixed cost&-23465&-23465&0\\ Result&20600&-23465&(44065)\\\end{array}\right]$

Fixed cost:

42,300 x 15% + 42,800 x 40% = 23,465

Variable cost:

42,300 x (1 - 15%) + 42,800 x (1 - 40%) = 61,635

The differencial will be discontinued less continued column

If the result is positive there is a cost saving if discontinued

if negative there is a loss in contribution if discontinued