Question

Johnson & Johnson, Inc.                      
Condensed Income Statement                      
For the Year Ended December 3, 2019       
Baby Oil       Dial Soap       Shampoo       Diapers
Sales: $1,200,000   $3,500,000      $2,750,000    $6,200,000
Cost Of Goods Sold:   
Variable Costs $480,000      $1,200,000 $850,000       $4,250,000
Fixed Costs $50,000        $50,000       $75,000        $100,000
Total Cost of Goods Sold $530,000       $1,250,000 $925,000       $4,350,000
                      
Gross Profit $670,000    $2,250,000    $1,825,000    $1,850,000
Operating Expenses

Variable Costs $125,000        $1,800,000    $1,875,000    $1,800,000
Fixed Costs $300,000        $375,000       $50,000        $200,000
Total Operating Expenses $425,000        $2,175,000    $1,925,000    $2,000,000
                      
Income (Loss) From Op. $245,000        $75,000       ($100,000) A ($150,000)

	Discontinue Alternatives:
	Continue		Discontinue		Differential
	Shampoo		Shampoo		Effect on Income
Sales:
Costs:
Variable
Fixed
Income (Loss)				C
	Continue		Discontinue		Differential
	Diapers		Diapers		Effect on Income
Sales
Costs:
Variable
Fixed
Income (Loss)				D

(Transfer your results from the Discontinue Alternatives to make a recommendation)  

Solution:  

If I discontinue Shampoo:  

Annual Loss from Retaining Diapers:(B)
Annual Loss from Discontinuing Shampoo:(C)
Total Annual Loss:

If I discontinue Diapers:  

Annual Loss from Discontinuing Diapers: (D)
Annual Loss from Retaining Shampoo: (A)

Total Annual Loss:

Answer: State which product would you recommend to discontinue and why?  

Answer 1

Differential analysis
			Continue	Discontinue	Differential
			Shampoo	Shampoo	effect on income
Sales			13650000	10900000	-2750000
Cost:
Variable			12380000	9655000	2725000
Fixed cost			1200000	1200000	0
Income /(Loss)		70000	45000	-25000
Differential Analysis
			Continue	Discontinue	Differential
			Diapers	Diapers	effect on income
Sales			13650000	7450000	-6200000
Cost:
Variable			12380000	6330000	6050000
Fixed cost			1200000	1200000	0
Income /(Loss)		70000	-80000	-150000
Solution:
If discontinue Shampoo:
Annual loss from retaining Diapers	-150000
Annual loss from Discontinue shampoo	-25000
Total annual loss			-175000
If discontinue diapers:
Annual loss from discontinue diapers	-150000
Annual loss from Retaining shampoo	-100000
Total annual loss			-250000
Shampoo shall discontinue