Answer and Explanation:
According to the scenario, computation of the given data are as follow:-
Variable Cost = Cost of Goods Sold × (100 - Estimate Percentage of Cost of Good Sold) + Operating Expenses × ( 100 - Operating Expenses Fixed Percentage)
= 186,500 × (100 - 30%) + 85,750 × (100 - 40%)
= 186,500 × 70÷100 + 85,750 × 60÷100
= $130,550 + $51,450
= $182,000
Fixed Cost= Cost of Goods Sold × Estimate Percentage of Cost of Good Sold + Operating Expenses × Operating Expenses Fixed Percentage
= $186,500 × 30÷100 + $85,750 × 40÷100
= $55,950 + $34,300
= $90,250
Differential analysis
Particular Product J continue Product J discontinue Difference on income
Sales 275,000 0 -275,000
Variable cost 182,000 0 182,000
Fixed cost 90,250 90,250 0
Income (Sales-Variable Cost-Fixed Cost) 2,750 -90,250 -93,000
According to the analysis, project J should not be discontinue because if project j discontinue variable cost doesn’t occur, but fixed costs still occur.
