mework i A ant Gilbert Canned Produce (GCP) packs and sells three varieties of canned produce: green beans; sweet peas; and tomatoes. The company is currently operating at 82 percent of capacity. Worried about the company's performance, the chief marketing officer is considering dropping the canned sweet peas. If sweet peas are dropped, the revenue associated with it would be lost and the related variable costs saved. In addition, the company's total fixed costs would be reduced by 15 percent. Segmented income statements appear as follows: rences Sales Variable costs Contribution margin. Fixed costs allocated to each product line. Operating profit (loss) Required: a. Prepare a differential cost schedule. b. Should Gilbert Canned Produce drop the sweet pea product line? 1 Complete this question by entering your answers in the tabs below. Required A Required B Revenue Less: Variable costs Contribution margin Green Beans $ 82,500 57,600 $ 24,900 10,180 $ 14,720 Less: Fixed costs Prepare a differential cost schedule. (Select option "increase" or "decrease", keeping Status Quo as the base. Select "none" if there is no effect.) Operating profit (loss) Status Quo Saved Alternative: Drop Sweet Peas Sweet Peas $ 110,000 101,400 $8,600 13,840 $ (5,240) Tomatoes $ 129,700 106,300 $ 23,400 17,360 $ 6,040 Difference
mework i A ant Gilbert Canned Produce (GCP) packs and sells three varieties of canned produce: green beans; sweet peas; and tomatoes. The company is currently operating at 82 percent of capacity. Worried about the company's performance, the chief marketing officer is considering dropping the canned sweet peas. If sweet peas are dropped, the revenue associated with it would be lost and the related variable costs saved. In addition, the company's total fixed costs would be reduced by 15 percent. Segmented income statements appear as follows: rences Sales Variable costs Contribution margin. Fixed costs allocated to each product line. Operating profit (loss) Required: a. Prepare a differential cost schedule. b. Should Gilbert Canned Produce drop the sweet pea product line? 1 Complete this question by entering your answers in the tabs below. Required A Required B Revenue Less: Variable costs Contribution margin Green Beans $ 82,500 57,600 $ 24,900 10,180 $ 14,720 Less: Fixed costs Prepare a differential cost schedule. (Select option "increase" or "decrease", keeping Status Quo as the base. Select "none" if there is no effect.) Operating profit (loss) Status Quo Saved Alternative: Drop Sweet Peas Sweet Peas $ 110,000 101,400 $8,600 13,840 $ (5,240) Tomatoes $ 129,700 106,300 $ 23,400 17,360 $ 6,040 Difference
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:**Gilbert Canned Produce Case Study**
Gilbert Canned Produce (GCP) packages and sells three varieties of canned produce: green beans, sweet peas, and tomatoes. Currently, the company operates at 82 percent of its capacity. Concerned about the company's financial performance, the chief marketing officer is contemplating whether to discontinue the canned sweet peas line. If they are discontinued, the company will forego the revenue generated by sweet peas and save related variable costs. Additionally, fixed costs would decrease by 15 percent.
Segmented income statements for each product line are provided below:
| | Green Beans | Sweet Peas | Tomatoes |
|---------------------------|-------------|------------|----------|
| **Sales** | $82,580 | $110,000 | $129,700 |
| **Variable costs** | $57,860 | $101,400 | $106,360 |
| **Contribution margin** | $24,720 | $8,600 | $23,340 |
| **Fixed costs allocated** | $10,180 | $13,840 | $17,360 |
| **Operating profit (loss)**| $14,720 | $(5,240) | $6,040 |
**Requirements:**
a. Prepare a differential cost schedule.
b. Consider if Gilbert Canned Produce should discontinue the sweet pea product line.
The form below is used to calculate the differential costs by comparing the current situation (status quo) to the scenario where sweet peas are discontinued:
- **Revenue**
- **Less: Variable costs**
- **Contribution margin**
- **Less: Fixed costs**
- **Operating profit (loss)**
*Note:* Use the provided table to fill in details for the above categories, considering changes in revenue, costs, and contribution margins when sweet peas are discontinued.
*Interactive elements are present below the table to facilitate the input of data and automatic calculations, displayed over a digital interface.*
This exercise helps in understanding cost behavior and decision-making regarding product discontinuation in a business context.
Expert Solution
Step 1: Differential analysis and its significance :
The differential analysis is performed to compare the different alternatives available to the business.
The dropping of product line is beneficial only if fixed costs can be avoided at higher amount as compared to contribution margin.
If contribution loss is higher, then it may increase the loss for the business due to excess fixed costs incurred
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