The condensed product-line income statement for Suffolk China Ware Company for the month of December is as follows:
Suffolk China Ware Company
Product-Line Income Statement
For the Month Ended December 31, 2014 |
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Bowls |
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Plates |
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Cups |
| Sales |
$64,700 |
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$88,800 |
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$26,900 |
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| Cost of goods sold |
26,800 |
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32,400 |
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15,800 |
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| Gross profit |
$37,900 |
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$56,400 |
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$11,100 |
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| Selling and administrative expenses |
28,600 |
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34,000 |
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15,900 |
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| Income from operations |
$9,300 |
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$22,400 |
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$(4,800) |
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Fixed costs are 12% of the cost of goods sold and 40% of the selling and administrative expenses. Suffolk China Ware assumes that fixed costs would not be materially affected if the Cups line were discontinued.
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a. Prepare a differential analysis dated December 31, 2014, to determine if Cups should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter zero "0".
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Continue Cups (Alt. 1) or Discontinue Cups (Alt. 2)
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Continue Cups (Alternative 1)
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Discontinue Cups (Alternative 2)
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Differential Effect on Income (Alternative 2)
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Variable cost of goods sold
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Variable selling and admin. expenses
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Follow Example Exercise 24-2. For continue and discontinue alternatives subtract the costs from the revenue. Use percentages to separate variable from fixed costs. Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 2 from alternative 1.
Learning Objective 1.
b. Should the Cups line be retained?
SelectYesNoCorrect 1 of Item