Question

The 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, 2016 1 Bowls Plates Cups 2 Sales $70,960.00 $105,450.00 $31,760.00 3 Cost of goods sold 32,990.00 42,680.00 16,710.00 4 Gross profit $37,970.00 $62,770.00 $15,050.00 5 Selling and administrative expenses 27,350.00 42,530.00 16,670.00 6 Income from operations $10,620.00 $20,240.00 $(1,620.00) Fixed costs are 30% of the cost of goods sold and 50% of the selling and administrative expenses. Dish N’ Dat assumes that fixed costs would not be materially affected if the Cups line were discontinued. Required: A. Prepare a differential analysis dated March 31, 2016, to determine if Cups should be continued (Alternative 1) or discontinued (Alternative 2). Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required. B. Should the Cups line be retained? Explain. A. Prepare a differential analysis dated March 31, 2016, to determine if Cups should be continued (Alternative 1) or discontinued (Alternative 2). Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required. Differential Analysis Continue Cups (Alternative 1) or Discontinue Cups (Alternative 2) March 31, 2016 1 Continue Cups Discontinue Cups Differential Effect on Income 2 (Alternative 1) (Alternative 2) (Alternative 2) 3 4 (Label) 5 6 7 8 B. Should the Cups line be retained? Explain. No Yes As indicated by the differential analysis in part (A), the income will by $ if the Cups line is discontinued.

Answer 1

Solution A:

Differential Analysis - Dish N Dat - Continue Cup (alt 1) or Discontinue Cup(Alt2)
Particulars	Continue Cup (Alt 1)	Discontinue Cup (Alt 2)	Differential effect on income (alt 2)
Sales	$208,170.00	$176,410.00	-$31,760.00
Variable Costs:
Cost of goods sold	$64,666.00	$52,969.00	-$11,697.00
Selling & Administrative expenses	$43,275.00	$34,940.00	-$8,335.00
Total Variable costs	$107,941.00	$87,909.00	-$20,032.00
Contribution margin	$100,229.00	$88,501.00	-$11,728.00
Fixed expenses:
Cost of goods sold	$27,714.00	$27,714.00	$0.00
Selling & Administrative expenses	$43,275.00	$43,275.00	$0.00
Total fixed expenses	$70,989.00	$70,989.00	$0.00
Income / (Loss)	$29,240.00	$17,512.00	-$11,728.00

Solution B:

Yes, cup line should be retained,  as indicated by the differential analysis in part (A), the income will decrease by $11,728 if the Cups line is discontinued.