Question

Differential Analysis Report for a Discontinued Product

The condensed product-line income statement for Porcelain Tableware Company is as follows:

PORCELAIN TABLEWARE COMPANY Product-Line Income Statement
	Bowls			Plates			Cups
Sales	$660,000			$885,000			$276,000
Cost of goods sold	(261,000)			(332,000)			(153,000)
Gross profit	$399,000			$553,000			$123,000
Selling and administrative expenses	(300,000)			(357,000)			(157,000)
Operating income (loss)	$99,000			$196,000			$(34,000)

Fixed costs are 35% of the cost of goods sold and 16% of the selling and administrative expenses. Porcelain Tableware assumes that fixed costs would not be significantly affected if the Cups line were discontinued.

a. Prepare a differential analysis report for all three products.

PORCELAIN TABLEWARE COMPANY
Product Income
Differential Analysis Report
	Bowls	Plates	Cups
Differential revenue from monthly sales:
	$	$	$
Differential costs of monthly sales:
	$	$	$
	$	$	$
Monthly differential income from sales	$	$	$

b. Which of the following statements about the Cups line is true?

Answer 1

Solution for Question-1(a)
Differential revenue from monthly sales.
Particular	Bowls	Plates	Cups
Revenue from Sales	$660,000	$885,000	$276,000
Differential costs of monthly sales
Variable cost of goods Sold	$169,650	$215,800	$99,450
Variable Selling and administration	$252,000	$299,880	$131,880
Total Variable Expense	$421,650	$515,680	$231,330
Monthly differential Income from Sales	$238,350	$369,320	$44,670
Working Notes-1
Particulars	Bowls	Plates	Cups
Total COGS	$261,000	$332,000	$153,000
Fixed COGS 35%	$91,350	$116,200	$53,550
Variable COGS	$169,650	$215,800	$99,450
Working Notes-2
Particulars	Bowls	Plates	Cups
Total Selling and administration	$300,000	$357,000	$157,000
Fixed Selling and administration @16%	$48,000	$57,120	$25,120
Variable Selling and administration	$252,000	$299,880	$131,880