Question - Differential Analysis for a Discontinued Product
The condensed product-line income statement for Porcelain Tableware Company for the month of December is as follows:
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Porcelain Tableware Company Product-Line Income Statement For the Month Ended December 31, 2012
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Bowls
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Plates
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Cups
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Sales
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$65,900
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$89,900
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$27,500
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Cost of goods sold
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27,300
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32,000
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15,500
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Gross profit
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$38,600
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$57,900
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$12,000
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Selling and administrative expenses
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28,900
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34,200
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15,600
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Income from operations
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$9,700
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$23,700
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$(3,600)
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Fixed costs are 14% of the cost of goods sold and 39% of the selling and administrative expenses. Porcelain Tableware assumes that fixed costs would not be materially affected if the Cups line were discontinued.
a. Prepare a differential analysis dated December 31, 2012, to determine if Cups should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter zero "0".
b. Should the Cups line be retained? Explain.