Question

Discontinue a Segment Product AG52 has revenues of $195,200, variable cost of goods sold of $115,200, variable selling expenses of $33,000, and fixed costs of $61.500, creating a loss from operations of $14,500. a. Prepare a differential analysis as of October 7 to determine if Product AGS52 should be continued (Alternative 1) or discontinued (Alternative 2), assuming fixed costs are unaffected by the decision. If an amount is zero, enter "0 Use a minus sign to indicate a loss.

Answer 1

Solution:

Alternative 1 : continue

Revenues	$195,200
Cost:
Variable Cost of goods sold	$115,200
Variable Selling expenses	$33,000
Fixed Costs	$61,500
Net Income Effect	-$14,500

Alternative 2 : Discontinue

Revenues	0
Cost:
Variable Cost of goods sold	0
Variable Selling expenses	0
Fixed Costs	$61,500
Net Income Effect	-$61,500

As there is a greater loss of 61,500 when the product is discontinued , product should be continued.