Dish N’ Dat Company
Product-Line Income Statement
For the Month Ended March 31, 2014
Bowls Plates Cups
Sales$71,000 $105,700 $31,300
Cost of goods sold 32,600 42,300 16,800
Gross profit$38,400 $ 63,400 $14,500
Selling and administrative expenses 27,400 42,800 16,700
Income from operations $11,000 $ 20,600 $ (2,200)
Fixed costs are 15% 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, 2014, to determine if Cups should be continued (Alternative 1) or discontinued (Alternative 2).
b. Should the Cups line be retained? Explain.
Answer:
a. Differential Analysis
Continue Cups (Alt. 1) or Discontinue Cups (Alt. 2)
March 31, 2014
Continue
Cups
(Alternative 1)
Discontinue
Cups
(Alternative 2)
Revenues $31,300 $ 0 –$31,300
Costs:
Variable cost of goods sold –14,2801
V
ariable selling and admin.
expenses –10,020
2
Fixed costs –9,200
3
–9,200 0
Income (Loss) –$ 2,200 –$9,200 –$ 7,000
$16,800 × (1 – 15%)
$16,700 × (1 – 40%)
($16,800 × 15%) + ($16,700 × 40%)
b. The Cups line should be retained. As indicated by the differential analysis in part (a),
the income will decrease by $7,000 if the Cups line is discontinued.
