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a. Prepare a differential analysis dated May 31 to determine if Cups should be continued (Alternative 1) or discontinued (Alternative 2). b. Should the Cups line be retained? Explain.

a. Prepare a differential analysis dated May 31 to determine if Cups should be continued (Alternative 1) or discontinued (Alternative 2). b. Should the Cups line be retained? Explain.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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### Differential Analysis: Continue or Discontinue Cups #### For the Month Ended May 31 This section provides a differential analysis comparing two alternatives: continuing or discontinuing the production of cups. The table below helps in understanding the impact on income for each scenario. | | Continue Cups (Alternative 1) | Discontinue Cups (Alternative 2) | Differential Effect on Income (Alternative 2) | |------------------------|-------------------------------|-----------------------------------|-----------------------------------------------| | **Revenues** | | | | | **Costs:** | | | | | Variable cost of goods sold | | | | | Variable selling and admin. expenses | | | | | Fixed costs | | | | | **Income (loss)** | | | | #### Explanation: - **Revenues**: Enter the total revenues for both alternatives. - **Variable cost of goods sold**: Enter the variable costs associated with the goods sold. - **Variable selling and admin. expenses**: Enter the variable selling and administrative expenses. - **Fixed costs**: Enter the fixed costs. - **Income (loss)**: Calculate the income or loss for both scenarios. At the bottom of the analysis, there is a conclusion regarding the future action: "The Cups line should be [decision input] since income would [increase/decrease] by [amount] if the cups are discontinued." This statement guides the decision on whether to continue or discontinue the production of cups based on the financial impact. By filling in the appropriate values and following this analysis, organizations can make informed decisions about product lines based on their financial outcomes.
Transcribed Image Text:### Differential Analysis: Continue or Discontinue Cups #### For the Month Ended May 31 This section provides a differential analysis comparing two alternatives: continuing or discontinuing the production of cups. The table below helps in understanding the impact on income for each scenario. | | Continue Cups (Alternative 1) | Discontinue Cups (Alternative 2) | Differential Effect on Income (Alternative 2) | |------------------------|-------------------------------|-----------------------------------|-----------------------------------------------| | **Revenues** | | | | | **Costs:** | | | | | Variable cost of goods sold | | | | | Variable selling and admin. expenses | | | | | Fixed costs | | | | | **Income (loss)** | | | | #### Explanation: - **Revenues**: Enter the total revenues for both alternatives. - **Variable cost of goods sold**: Enter the variable costs associated with the goods sold. - **Variable selling and admin. expenses**: Enter the variable selling and administrative expenses. - **Fixed costs**: Enter the fixed costs. - **Income (loss)**: Calculate the income or loss for both scenarios. At the bottom of the analysis, there is a conclusion regarding the future action: "The Cups line should be [decision input] since income would [increase/decrease] by [amount] if the cups are discontinued." This statement guides the decision on whether to continue or discontinue the production of cups based on the financial impact. By filling in the appropriate values and following this analysis, organizations can make informed decisions about product lines based on their financial outcomes.
### EX 25-4 Differential Analysis for a Discontinued Product #### Objective 1 The condensed product-line income statement for Dish N’ Dat Company for the month of May is as follows: #### Dish N’ Dat Company **Product-Line Income Statement** *For the Month Ended May 31* | | Bowls | Plates | Cups | |---|-------|--------|------| | **Sales** | $71,000 | $105,700 | $33,500 | | **Cost of Goods Sold** | 32,600 | 42,300 | 20,600 | | **Gross Profit** | $38,400 | $63,400 | $12,900 | | **Selling and Administrative Expenses** | 27,400 | 42,800 | 17,200 | | **Income from Operations** | $11,000 | $20,600 | $(4,300) | **Notes:** - Fixed costs are 15% of the cost of goods sold and 30% of the selling and administrative expenses. - Dish N’ Dat assumes that fixed costs would not be materially affected if the Cups line were discontinued. **Tasks:** a. **Prepare a Differential Analysis** dated May 31 to determine if the Cups line should be continued (Alternative 1) or discontinued (Alternative 2). b. **Decision and Explanation:** *Should the Cups line be retained? Explain.* ### Analysis Summary 1. **Sales**: Represents the total revenue generated from the sale of bowls, plates, and cups. 2. **Cost of Goods Sold (COGS)**: The direct costs attributable to the production of the goods sold. 3. **Gross Profit**: Sales minus the cost of goods sold. 4. **Selling and Administrative Expenses**: Expenses incurred that are not directly tied to the production of goods. 5. **Income from Operations**: Gross profit minus selling and administrative expenses, indicating the profit earned from regular operations. ### Fixed Costs Breakdown - 15% of COGS are fixed costs. - 30% of selling and administrative expenses are fixed costs. The given data needs to be used to compute whether continuing or discontinuing the Cups line is more financially beneficial for the company.
Transcribed Image Text:### EX 25-4 Differential Analysis for a Discontinued Product #### Objective 1 The condensed product-line income statement for Dish N’ Dat Company for the month of May is as follows: #### Dish N’ Dat Company **Product-Line Income Statement** *For the Month Ended May 31* | | Bowls | Plates | Cups | |---|-------|--------|------| | **Sales** | $71,000 | $105,700 | $33,500 | | **Cost of Goods Sold** | 32,600 | 42,300 | 20,600 | | **Gross Profit** | $38,400 | $63,400 | $12,900 | | **Selling and Administrative Expenses** | 27,400 | 42,800 | 17,200 | | **Income from Operations** | $11,000 | $20,600 | $(4,300) | **Notes:** - Fixed costs are 15% of the cost of goods sold and 30% of the selling and administrative expenses. - Dish N’ Dat assumes that fixed costs would not be materially affected if the Cups line were discontinued. **Tasks:** a. **Prepare a Differential Analysis** dated May 31 to determine if the Cups line should be continued (Alternative 1) or discontinued (Alternative 2). b. **Decision and Explanation:** *Should the Cups line be retained? Explain.* ### Analysis Summary 1. **Sales**: Represents the total revenue generated from the sale of bowls, plates, and cups. 2. **Cost of Goods Sold (COGS)**: The direct costs attributable to the production of the goods sold. 3. **Gross Profit**: Sales minus the cost of goods sold. 4. **Selling and Administrative Expenses**: Expenses incurred that are not directly tied to the production of goods. 5. **Income from Operations**: Gross profit minus selling and administrative expenses, indicating the profit earned from regular operations. ### Fixed Costs Breakdown - 15% of COGS are fixed costs. - 30% of selling and administrative expenses are fixed costs. The given data needs to be used to compute whether continuing or discontinuing the Cups line is more financially beneficial for the company.
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