Question

Differential Analysis for a Discontinued Product

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
	Bowls			Plates			Cups
Sales	$65,000			$90,000			$27,300
Cost of goods sold	27,300			31,900			14,100
Gross profit	$37,700			$58,100			$13,200
Selling and administrative expenses	30,100			35,200			15,300
Income from operations	$7,600			$22,900			$(2,100)

Fixed costs are 13% of the cost of goods sold and 40% of the selling and administrative expenses. Dish N’ Dat assumes that fixed costs would not be materially affected if the Cups line were discontinued.

a. Prepare a differential analysis dated March 31 to determine if Cups should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". Use a minus sign to indicate a loss.

Differential Analysis
Continue Cups (Alt. 1) or Discontinue Cups (Alt. 2)
March 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?

Answer 1

Answer-a)-

Dish N' Dat Company
DIFFERENTIAL ANALYSIS
PARTICULARS	CONTINUE CUPS	ELIMINATE CUPS	NET INCOME INCREASE (DECREASE)
	$	$	$
Sales	27300	0	-27300
Less- Variable Costs
Cost of goods sold	$14100*87%=$12267	0	12267
Selling and adminstrative expenses	$15300*60%= $9180	0	9180
Total Variable costs	21447	0	21447
Contribution margin	5853	0	-5853
Less- Fixed costs
Cost of goods sold	$14100*13%=$1833	1833	0
Operating expenses	$15300*40%= $6120	6120	0
Total Fixed costs	7953	7953	0
Net Income (Loss)	-2100	-7953	-5853

b)- The Cup line should be retained.