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 $65,500      $89,200      $26,800    Cost of goods sold (26,000)     (33,400)     (14,000)   Gross profit $39,500      $55,800      $12,800    Selling and administrative expenses (29,200)     (34,000)     (16,300)   Operating income (loss) $10,300      $21,800      $(3,500)   Fixed costs are 15% of the cost of goods sold and 44% 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 (Alt. 2) Mufflers October 31   Continue Mufflers (Alternative 1) Discontinue Mufflers (Alternative 2) Differential Effects (Alternative 2) Revenues $fill in the blank 7f8219f63f8b076_1 $fill in the blank 7f8219f63f8b076_2 $fill in the blank 7f8219f63f8b076_3 Costs:       Variable cost of goods sold fill in the blank 7f8219f63f8b076_4 fill in the blank 7f8219f63f8b076_5 fill in the blank 7f8219f63f8b076_6 Variable selling and admin. expenses fill in the blank 7f8219f63f8b076_7 fill in the blank 7f8219f63f8b076_8 fill in the blank 7f8219f63f8b076_9 Fixed costs fill in the blank 7f8219f63f8b076_10 fill in the blank 7f8219f63f8b076_11 fill in the blank 7f8219f63f8b076_12 Profit (Loss) $fill in the blank 7f8219f63f8b076_13 $fill in the blank 7f8219f63f8b076_14 $fill in the blank 7f8219f63f8b076_15 b.  Should the Mufflers line be retained?

FINANCIAL ACCOUNTING
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ISBN:9781259964947
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Chapter1: Financial Statements And Business Decisions
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  1. 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 $65,500      $89,200      $26,800   
    Cost of goods sold (26,000)     (33,400)     (14,000)  
    Gross profit $39,500      $55,800      $12,800   
    Selling and administrative expenses (29,200)     (34,000)     (16,300)  
    Operating income (loss) $10,300      $21,800      $(3,500)  

    Fixed costs are 15% of the cost of goods sold and 44% 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 (Alt. 2) Mufflers
    October 31
      Continue
    Mufflers
    (Alternative 1)
    Discontinue
    Mufflers
    (Alternative 2)
    Differential
    Effects
    (Alternative 2)
    Revenues $fill in the blank 7f8219f63f8b076_1 $fill in the blank 7f8219f63f8b076_2 $fill in the blank 7f8219f63f8b076_3
    Costs:      
    Variable cost of goods sold fill in the blank 7f8219f63f8b076_4 fill in the blank 7f8219f63f8b076_5 fill in the blank 7f8219f63f8b076_6
    Variable selling and admin. expenses fill in the blank 7f8219f63f8b076_7 fill in the blank 7f8219f63f8b076_8 fill in the blank 7f8219f63f8b076_9
    Fixed costs fill in the blank 7f8219f63f8b076_10 fill in the blank 7f8219f63f8b076_11 fill in the blank 7f8219f63f8b076_12
    Profit (Loss) $fill in the blank 7f8219f63f8b076_13 $fill in the blank 7f8219f63f8b076_14 $fill in the blank 7f8219f63f8b076_15

    b.  Should the Mufflers line be retained?
     

  2.  
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