Product JO is one of the many products manufactured and sold by Bayside Company. An income statement by product line for the past year indicated a net profit for Product JO of P2,750. This net profit resulted from sales of P275,000, cost of goods sold of P186,500, and operating expenses of P85,750. It is estimated that 30% of the cost of goods sold represents fixed factory overhead costs and that 40% of the operating expense is fixed. If Product JO is retained, the revenue, costs, and expenses are not expected to change significantly from those of the current year. Because of the large number of products manufactured, the total fixed costs and expenses are not expected to decline significantly if Product JO is discontinued. Should the company continue or discontinue producing Product JO? Prepare a differential analysis report to support your answer.
Product JO is one of the many products manufactured and sold by Bayside Company. An income statement by product line for the past year indicated a net profit for Product JO of P2,750. This net profit resulted from sales of P275,000, cost of goods sold of P186,500, and operating expenses of P85,750. It is estimated that 30% of the cost of goods sold represents fixed factory overhead costs and that 40% of the operating expense is fixed. If Product JO is retained, the revenue, costs, and expenses are not expected to change significantly from those of the current year. Because of the large number of products manufactured, the total fixed costs and expenses are not expected to decline significantly if Product JO is discontinued. Should the company continue or discontinue producing Product JO? Prepare a differential analysis report to support your answer.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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- Product JO is one of the many products manufactured and sold by Bayside Company. An income statement by product line for the past year indicated a net profit for Product JO of P2,750. This net profit resulted from sales of P275,000, cost of goods sold of P186,500, and operating expenses of P85,750. It is estimated that 30% of the cost of goods sold represents fixed
factory overhead costs and that 40% of the operating expense is fixed. If Product JO is retained, the revenue, costs, and expenses are not expected to change significantly from those of the current year. Because of the large number of products manufactured, the total fixed costs and expenses are not expected to decline significantly if Product JO is discontinued.
Should the company continue or discontinue producing Product JO? Prepare a differential analysis report to support your answer.
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