Question

Product Tango has revenue of $195,200, variable cost of goods sold of $115,600, variable selling expenses of $33,000, and fixed costs of $58,300, creating an operating loss of $(11,700).
Required:
a. Prepare a differential analysis as of February 13 to determine if Product Tango should be continued or discontinued , assuming fixed costs are unaffected by the decision.
b. Determine if Product Tango should be continued

Answer 1

Answer:

a.

Differential analysis on whether to continue or discontinue Product Tango

                                     Continue                Discontinue

Sales                            $195,200                       $0

Less Variable Costs :

Cost of Goods Sold    ($115,600)                       $0

Selling Expenses         ($33,000)                       $0

Less Fixed Costs :

Fixed Costs                  ($58,300)                 ($58,300)

Net Income/ (Loss)       ($12,300)                 ($58,300)

b

Continue with Product Tango. Because it brings a contribution towards the Fixed Costs helping to achieve a smaller loss margin.

Explanation:

From the differential analysis, Fixed costs will remain the same whether the product is discontinued or not. This is because they are centrally controlled. Only the variable costs would change.