Question

Differential Analysis Report for a Discontinued Product

The condensed product-line income statement for Porcelain Tableware Company is as follows:

PORCELAIN TABLEWARE COMPANY Product-Line Income Statement
	Bowls			Plates			Cups
Sales	$658,000			$887,000			$262,000
Cost of goods sold	(262,000)			(320,000)			(148,000)
Gross profit	$396,000			$567,000			$114,000
Selling and administrative expenses	(291,000)			(347,000)			(145,000)
Operating income (loss)	$105,000			$220,000			$(31,000)

Fixed costs are 43% of the cost of goods sold and 17% of the selling and administrative expenses. Porcelain Tableware assumes that fixed costs would not be significantly affected if the Cups line were discontinued.

a. Prepare a differential analysis report for all three products.

PORCELAIN TABLEWARE COMPANY
Product Income
Differential Analysis Report
	Bowls	Plates	Cups
Differential revenue from monthly sales:
	$	$	$
Differential costs of monthly sales:
	$	$	$
	$	$	$
Monthly differential income from sales	$	$	$

b. Which of the following statements about the Cups line is true?

Answer 1

	Porcelain Tableware Company
	Product Income
	Differential analysis Report
		Bowls	Plates	Cups
	Differential revenue from monthly sales
	Revenues from sales	$       6,58,000	$       8,87,000	$       2,62,000
	Differential cost from monthly sales
	Variable cost of goods sold	$       1,49,340	$       1,82,400	$           84,360
	Variable selling and administrative cost	$       2,41,530	$       2,88,010	$       1,20,350
	Total variable costs	$       3,90,870	$       4,70,410	$       2,04,710
	Monthly differential Income from sales	$       2,67,130	$       4,16,590	$           57,290
		Bowls	Plates	Cups
(i)	Total cost of goods sold	$       2,62,000	$       3,20,000	$       1,48,000
(ii) = (i) X 43%	Fixed cost of goods sold	$       1,12,660	$       1,37,600	$           63,640
(i) - (ii)	Variable cost of goods sold	$       1,49,340	$       1,82,400	$           84,360
		Bowls	Plates	Cups
(i)	Total selling and administrative cost	$       2,91,000	$       3,47,000	$       1,45,000
(ii) = (i) X 17%	Fixed selling and administrative cost	$           49,470	$           58,990	$           24,650
(i) - (ii)	Variable selling and administrative cost	$       2,41,530	$       2,88,010	$       1,20,350