Assignment
Product J is one of the many products manufactured and sold by Oceanside Company. An income statement by product line for the past year indicated a net loss for Product J of $12,250. This net loss resulted from sales of $275,000, cost of goods sold of $186,500, and operating expenses of $85,750. It is estimated that 30% of the cost of goods sold represents fixed factory overhead costs and that 40% of the operating expense is fixed. If Product J is retained, the revenue, costs, and expenses are not expected to change significantly from those of the current year. Because of the large number of products manufactured, the total fixed costs and expenses are not expected to decline significantly if Product J is discontinued.
Required:
1. Prepare a differential analysis report, dated February 8 of the current year, on the proposal to discontinue Product J. Use a minus sign to indicate numbers to be subtracted or negative numbers. If there is no amount or an amount is zero, enter "0". Below the report, indicate whether Oceanside Company should continue or discontinue to manufacture Product J.
Differential Analysis
Continue Product J (Alternative 1) or Discontinue Product J (Alternative 2)
February 8
|
1
|
|
Continue Product J
|
Discontinue Product J
|
Differential Effect on Income
|
|
2
|
|
(Alternative 1)
|
(Alternative 2)
|
(Alternative 2)
|
|
3
|
Revenues
|
|
|
|
|
4
|
Costs:
|
|
|
|
|
5
|
Variable
|
|
|
|
|
6
|
Fixed
|
|
|
|
|
7
|
Total costs
|
|
|
|
|
8
|
Income (loss)
|
|
|
|
2. Oceanside Company should
a. discontinue the manufacturing of Product J
b. continue the manufacturing of Product J.