Differential Analysis for a Discontinued ProductA condensed income statement by product line for Lavonia Beverage Inc. indicated the following for Vim Cola for the past year:SalesCost of goods sold$233,400(111,000)Gross profitOperating expensesOperating loss$122,400(143,000)$(20,600)It is estimated that 14% of the cost of goods sold represents fixed factory overhead costs and that 18% of the operating expenses are fixed. Because Vim Cola is only one of many products, the fixed costs will not be materiallyaffected if the product is discontinued.a. Prepare a differential analysis dated November 2 to determine whether Vim Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.Differential AnalysisContinue (Alt. 1) or Discontinue (Alt. 2) Vim ColaLine Item DescriptionNovember 2ContinueVim ColaDiscontinueVim ColaDifferentialEffectsRevenuesCosts:Variable cost of goods soldVariable operating expensesFixed costsProfit (loss)(Alternative 1) (Alternative 2) (Alternative 2)$

The objective of the question is to prepare a differential analysis to determine whether Vim Cola…

Answered: Differential Analysis for a…

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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Applying Differential Analysis to Profitability Scenarios Assume that Company A and Company B sell a microwave popcorn popper for $20. Although the companies have different cost structures, both companies currently show a profit of $21,000 based on sales of 14,000 units as shown in the following financial statements for the month of June. Both companies hold no inventory and sell contractual orders in the month. For the Month of June Company A Company B Sales ($20) $280,000 $280,000 Variable cost of goods sold ($5.00, 7.50, Company A and B, respectively) 70,000 105,000 Variable selling and administrative costs ($2.00, $4.00, Company A and B, respectively) 28,000 56,000 Contribution margin 182,000 119,000 Fixed cost of goods sold 105,000 70,000 Fixed selling and administrative costs 56,000 28,000 Profits Before-Tax $21,000 $21,000 For each company, determine the impact on monthly profit using differential analysis for each of the following separate scenarios.1.…
Calculator Print Item Differential Analysis for a Discontinued Product The condensed product-line income statement for Rhinebeck Company for the month of October is as follows: Rhinebeck Company Product-Line Income Statement For the Month Ended October 31 Hats Gloves Mufflers Sales $65,000 $90,100 $27,000 Cost of goods sold (26,900) (32,300) (14,300) Gross profit $38,100 $57,800 $12,700 Selling and administrative expenses (29,200) (34,400) (15,300) Operating income (loss) $8,900 $23,400 $(2,600) Fixed costs are 12% of the cost of goods sold and 45% of the selling and administrative expenses. Rhinebeck Company assumes that fixed costs would not be materially affected if the Gloves line were discontinued. a. Prepare a differential analysis dated October 31 to determine if Mufflers should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Continue (Alt. 1) or Discontinue…
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A condensed income statement by product line for British Beverage Inc. indicated the following for Royal Cola for the past year: Sales $233,300 Cost of goods sold 111,000 Gross profit $122,300 Operating expenses 145,000 Loss from operations $(22,700) It is estimated that 12% of the cost of goods sold represents fixed factory overhead costs and that 23% of the operating expenses are fixed. Since Royal Cola is only one of many products, the fixed costs will not be materially affected if the product is discontinued. a. Prepare a differential analysis, dated March 3, to determine whether Royal Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter zero "0". Use a minus sign to indicate a loss. Differential Analysis Continue Royal Cola (Alt. 1) or Discontinue Royal Cola (Alt. 2) January 21 Continue RoyalCola (Alternative 1) Discontinue RoyalCola (Alternative 2) Differential Effecton Income(Alternative 2)…
The income statement for the RUN-84979 company, an atletic shoe retailer, for the first quarter of the year is presented below: RUN-84979 Income Statement Sales $151,200 54,600 96,600 Cost of goods sold Gross margin Selling and administrative expenses Selling Administration $45,400 29,096 74,496 Net operating income $ 22,104 On average, an athletic shoe sells for $72. Variable selling expenses are $14 per athletic shoe, and the remaining selling expenses are fixed. The variable administrative expenses are 8% of sales with the remainder being fixed. How much is the total contribution margin for RUN-84979 for the first quarter?
Hancock Company manufactures and sells two lines of furniture, case goods and upholstery, During the most recent accounting period, the Case Goods and Upholstery Divisions sold 17,400 and 2,360 units, respectively. The company's most recent financial statements are shown below. Sales Less cost of goods sold: Unit-level production cost Depreciation, production equipment Gross margin Less operating expenses: Case Goods Upholstery $1,852,000 $472,000 1,156,000 276,000 $420,000 283,200 70,800 $118,000 Unit-level selling and administrative costs Corporate-level facility expenses (fixed) Net income (loss) If unit sales for both divisions increased 10% the company would report which of the following? 69,600 64,000 $286,400 59,000 64,000 $(5,000)
The following is the year ended data for Tiger Company: Sales Revenue $58,000 Cost of Goods Manufactured 21,000 Beginning Finished Goods Inventory 1,100 Ending Finished Goods Inventory 2,200 Selling Expenses 15,000 Administrative Expenses 3,900 What is the gross profit? A. $22,100 B. $38,100 C. $19,200 D.
Differential Analysis for a Discontinued Product A condensed income statement by product line for Crown Beverage Inc. indicated the following for Royal Cola for the past year: Sales $236,700 Cost of goods sold 111,000 Gross profit Operating expenses Loss from operations $125,700 144,000 $(18,300) It is estimated that 16% of the cost of goods sold represents fixed factory overhead costs and that 19% of the operating expenses are fixed. Since Royal Cola is only one of many products, the fixed costs will not be materially affected if the product is discontinued. a. Prepare a differential analysis, dated March 3, to determine whether Royal Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter zero "0". Use a minus sign to indicate a loss. Revenues Differential Analysis Continue Royal Cola (Alt. 1) or Discontinue Royal Cola (Alt. 2) January 21 Continue Royal Discontinue Royal Cola (Alternative 1) Cola (Alternative 2) 236,700 Differential…
Differential Analysis for a Discontinued Product A condensed income statement by product line for Lavonia Beverage Inc. indicated the following for Vim Cola for the past year: Sales $234,600 Cost of goods sold (111,000) Gross profit $123,600 (144,000) $(20,400) Operating expenses Operating loss It is estimated that 15% of the cost of goods sold represents fixed factory overhead costs and that 23% of the operating expenses are fixed. Because Vim Cola is only one of many products, the fixed costs will not be materially affected if the product is discontinued. a. Prepare a differential analysis dated November 2 to determine whether Viem Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Continue (Alt. 1) or Discontinue (Alt. 2) Vim Colo November 2 Line Item Description Revenues Costs: Variable cost of goods sold Variable operating expenses Fixed costs Profit…
Differential Analysis for a Discontinued Product A condensed income statement by product line for Warrick Beverage Inc. indicated the following for Mango Cola for the past year: Sales $15,000,000 Cost of goods sold (10,800,000) Gross profit $4,200,000 Operating expenses (8,000,000) >) Operating loss $(3,800,000) It is estimated that 30% of the cost of goods sold represents fixed factory overhead costs and that 25% of the operating expenses are fixed. Because Mango Cola is only one of many products, the fixed costs will not be materially affected if the product is discontinued. a. Prepare a differential analysis dated February 29 to determine whether Mango Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Continue (Alt. 1) or Discontinue (Alt. 2) Mango Cola February 29 Continue Discontinue Differential Mango Cola Effects Mango Cola (Alternative 1) (Alternative…
Whipple Company has sales revenue of $585,000. Cost of goods sold before adjustment is $335,000. The company uses machine hours to allocate manufacturing overhead and estimated 10,450 machine hours would be used during the year. For the year, manufacturing overhead was under-allocated by $13,400. The company's actual manufacturing overhead is $91,000. What is the actual gross profit? Select one: a. $250,000 b. $159,000 c. $236,600 d. $104,400 e. $263,400
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