Differential Analysis for a Discontinued Product
The condensed product-line income statement for Suffolk ChinaWare Company for the month of May is as follows:
Suffolk China Ware Company
Product-Line Income Statement
For the Month Ended May 31 |
| Bowls | | Plates | | Cups |
| Sales | $64,900 | | | $89,400 | | | $26,700 | |
| Cost of goods sold | 25,700 | | | 33,400 | | | 14,300 | |
| Gross profit | $39,200 | | | $56,000 | | | $12,400 | |
| Selling and administrative expenses | 30,200 | | | 35,000 | | | 15,700 | |
| Income from operations | $9,000 | | | $21,000 | | | $(3,300) | |
Fixed costs are 12% of the cost of goods sold and 41% of theselling and administrative expenses. Suffolk China Ware assumesthat fixed costs would not be materially affected if the Cups linewere discontinued.
a. Prepare a differential analysis dated May 31to determine if Cups should be continued (Alternative 1) ordiscontinued (Alternative 2). If an amount is zero, enter "0". Forthose boxes in which you must enter subtracted or negative numbersuse a minus sign.
| Differential Analysis |
| Continue Cups (Alt. 1) or Discontinue Cups (Alt.2) |
| For the Month Ended May 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?Explain.
Yes or No
As indicated by the differential analysis in part (a), theincome will __________ by $______ if the Cups line isdiscontinued.
