Differential Analysis for a Discontinued Product The condensed product-line income statement for Northern Lights Company for the month of August is as follows: Northern Lights Company Product-Line Income Statement For the Month Ended August 31 Sales Cost of goods sold Gross profit Selling and administrative expenses Operating income (loss) Line Item Description Revenues Costs: Variable cost of goods sold Variable selling and admin. expenses Fixed costs Hats Profit (Loss) $65,500 (27,300) $38,200 (28,900) $9,300 Fixed costs are 16% of the cost of goods sold and 45% of the selling and administrative expenses. Northern Lights Company assumes that fixed costs would not be materially affected if the Socks line were discontinued. a. Prepare a differential analysis dated August 31 to determine if Socks 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) Socks August 31 Gloves $88,700 (33,700) $55.000 (35,900) $19,100 Socks 100000 0 0000 Continue Socks Discontinue Differential Effects (Alternative 1) (Alternative 2) (Alternative 2) Socks $26,400 (15,400) $11,000 (15,900) $(4,900)
Differential Analysis for a Discontinued Product The condensed product-line income statement for Northern Lights Company for the month of August is as follows: Northern Lights Company Product-Line Income Statement For the Month Ended August 31 Sales Cost of goods sold Gross profit Selling and administrative expenses Operating income (loss) Line Item Description Revenues Costs: Variable cost of goods sold Variable selling and admin. expenses Fixed costs Hats Profit (Loss) $65,500 (27,300) $38,200 (28,900) $9,300 Fixed costs are 16% of the cost of goods sold and 45% of the selling and administrative expenses. Northern Lights Company assumes that fixed costs would not be materially affected if the Socks line were discontinued. a. Prepare a differential analysis dated August 31 to determine if Socks 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) Socks August 31 Gloves $88,700 (33,700) $55.000 (35,900) $19,100 Socks 100000 0 0000 Continue Socks Discontinue Differential Effects (Alternative 1) (Alternative 2) (Alternative 2) Socks $26,400 (15,400) $11,000 (15,900) $(4,900)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Differential Analysis for a Discontinued Product
The condensed product-line income statement for Northern Lights Company for the month of August is as follows:
Northern Lights Company
Product-Line Income Statement
For the Month Ended August 31
Sales
Cost of goods sold
Gross profit
Selling and administrative expenses
Operating income (loss)
Line Item Description
Revenues
Costs:
Fixed costs are 16% of the cost of goods sold and 45% of the selling and administrative expenses. Northern Lights Company assumes that fixed costs would not be materially affected if the Socks line were discontinued.
a. Prepare a differential analysis dated August 31 to determine if Socks 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) Socks
August 31
Variable cost of goods sold
Variable selling and admin. expenses
Fixed costs
Hats
$65,500
(27,300)
$38,200
(28,900)
$9,300
Profit (Loss)
Gloves
$88,700
(33,700)
$55,000
(35,900)
$19,100
100000
Q0000
Continue
Discontinue Differential
Effects
Socks
(Alternative 1) (Alternative 2) (Alternative 2)
Socks
Socks
$26,400
(15,400)
$11,000
(15,900)
$(4,900)
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