Product S has revenue of $149,000, variable cost of goods sold of $88,500, variable selling expenses of $24,500, and fixed costs of $40,000

Product S has revenue of $149,000, variable cost of goods sold of $88,500, variable selling expenses of $24,500, and fixed costs of $40,000, creating a loss from operations of $4,000. Prepare a differential analysis as of September 12, 2014, to determine if Product S should be continued (Alternative 1) or discontinued (Alternative 2), assuming fixed costs are unaffected by the decision.

Answer:


Differential Analysis 
Continue Product S (Alt. 1) or Discontinue Product S (Alt. 2) 
September 12, 2014 


Continue 
Product S 
(Alternative 1) 
Revenue $149,000 $ 0 –$149,000 
Costs:    
Variable cost of goods sold –88,500 0 88,500 
Variable selling and admin.    
expenses –24,500 0 24,500 
Fixed costs –40,000 –40,000 0 
Income (Loss) –$ 4,000 –$40,000 –$  36,000 
    
Product S should be continued.