Question

he 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 $71,000 $105,700 $31,300 Cost of goods sold 32,600 42,300 16,800 Gross profit $38,400 $63,400 $14,500 Selling and administrative expenses 27,400 42,800 16,700 Income from operations $11,000 $20,600 $(2,200) Fixed costs are 15% of the cost of goods sold and 40% 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.

Answer 1

Answer and Explanation:

As per the data given in the question,

                                              Differential analysis

                             Continue cup(Alt. 1) Discontinue cups(Alt 2)

      Particulars                                     Alt 1              Alt 2              Differential

                                                                                                                                   Effect on income

Revenues                                              $31,300             $0              $31,300

Costs:

Variable cost of goods sold                 $14,280             $0              $14,280

     ($16,800×(100%-15%)

Variable selling and admin expenses $10,020             $0              $10,020

      ($16,700(100%-40%)

Fixed cost                                              $9,200               $9,200       $0

      ($16,800×15%+$16,700×40%)

Net income                                           ($2,200)           ( $9,200)     ($7,000)