Question

Differential Analysis for a Discontinued Product

The condensed product-line income statement for Suffolk China Ware Company for the month of May is as follows:

Suffolk China Ware Company Product-Line Income Statement For the Month Ended May 31
	Bowls			Plates			Cups
Sales	$64,900			$89,400			$26,700
Cost of goods sold	25,700			33,400			14,300
Gross profit	$39,200			$56,000			$12,400
Selling and administrative expenses	30,200			35,000			15,700
Income from operations	$9,000			$21,000			$(3,300)

Fixed costs are 12% of the cost of goods sold and 41% of the selling and administrative expenses. Suffolk China Ware assumes that fixed costs would not be materially affected if the Cups line were discontinued.

a. Prepare a differential analysis dated May 31 to determine if Cups should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential Analysis
Continue Cups (Alt. 1) or Discontinue Cups (Alt. 2)
For the Month Ended May 31
	Continue Cups (Alternative 1)	Discontinue Cups (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues	$	$	$
Costs:
Variable cost of goods sold
Variable selling and admin. expenses
Fixed costs
Income (Loss)	$	$	$

b. Should the Cups line be retained? Explain.
Yes or No

As indicated by the differential analysis in part (a), the income will __________ by $______ if the Cups line is discontinued.

Answer 1

	Bowls	Plates	Cups
Sales	$64,900	$89,400	$26,700
Less:-
Variable COGS	$22,616	$29,392	$12,584
Fixed Costs	$3,084	$4,008	$1,716
V Selling and Admin	$17,818.00	$20,650.00	$9,263.00
F Selling and admin	$12,382.00	$14,350.00	$6,437.00
Income from Operations	$9,000	$21,000	-$3,300
	Continue Cups	Discontinue Cups	Differential effect
	(Alternative 1)	(Alternative 2)	on Income
Revenues	$181,000	$154,300	-26,700.00
Costs:-
Variable COGS	$64,592	$52,008	-12,584.00
V Selling and Admin	$47,731	$38,468	-9,263.00
Fixed Costs	$41,977.00	$41,977.00	0.00
Income( Loss)	$26,700.00	$21,847.00	-$4,853.00
				As indicated by the differential analysis in part (a), the income will REDUCE
by $ 4583 if the Cups line is discontinued.

THANK YOU
HOPING FOR A POSITIVE RESPONSE