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	$70,800.00	$106,170.00	$31,420.00
3	Cost of goods sold	32,650.00	42,340.00	16,780.00
4	Gross profit	$38,150.00	$63,830.00	$14,640.00
5	Selling and administrative expenses	27,790.00	42,350.00	16,560.00
6	Income from operations	$10,360.00	$21,480.00	$(1,920.00)

Fixed costs are 10% 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.

Labels and Amount Descriptions

Labels
Cash flows from investing activities
Costs
Amount Descriptions
Fixed costs
Gain on sale of investments
Income (loss)
Loss on sale of investments
Revenues
Total costs
Variable cost of goods sold
Variable selling and administrative expenses

Differential Analysis

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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.

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Score: 0/89

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)
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Points:

0 / 21

Feedback

Check My Work

A. For continue and discontinue alternatives subtract the costs from the revenue. Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 1 from alternative 2.

Final Question

As indicated by the differential analysis in part (A), the income will decrease by _____________

if the Cups line is discontinued ?

Answer 1

	Alternative 1	Alternative 2	Differential Effect on Income
Revenues	208,390	176,970	31,420
Cost of goods sold	91,770	74,990	16,780
Gross Profit	116,620	101,980	14,640
Variable Selling and Adminstartion Expesnes	34,173	27,571	6,602
Fixed Cost	52,527	52,527	-
Income From Operations	29,920	21,882	8,038

Workings:

				Alternative 1	Alternative 2
	Bowls	Plates	Cups	Total
Revenues	70,800	106,170	31,420	208,390	176,970
Cost of goods sold	32,650	42,340	16,780	91,770	74,990
Gross Profit	38,150	63,830	14,640	116,620	101,980
Variable Selling and Adminstartion Expesnes	10,630	16,941	6,602	34,173	27,571
Fixed Cost	17,160	25,409	9,958	52,527	52,527
Income From Operations	10,360	21,480	(1,920)	134,974	31,840

Assumption:

It is assumed that Selling and Admin Expenses given in the Question is inclusive of Fixed Cost.

As indicated by the differential analysis in part (A), the income will decrease by 8,038 if CUP division will be Discontinued.

So, the Cup Division should not be discontinued.

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