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Product Tango has revenue of $1,150,000, variable cost of goods sold of $850,000, variable selling expenses of $275,000, and fixe costs of $125,000, creating an operating loss of $(100,000). a. Prepare a differential analysis as of February 13 to determine if Product Tango should be continued (Alternative 1) or discontinu (Alternative 2), assuming fixed costs are unaffected by the decision. If an amount is zero, enter "0". If required, use a minus sign indicate a loss.

Product Tango has revenue of $1,150,000, variable cost of goods sold of $850,000, variable selling expenses of $275,000, and fixe costs of $125,000, creating an operating loss of $(100,000). a. Prepare a differential analysis as of February 13 to determine if Product Tango should be continued (Alternative 1) or discontinu (Alternative 2), assuming fixed costs are unaffected by the decision. If an amount is zero, enter "0". If required, use a minus sign indicate a loss.

FINANCIAL ACCOUNTING
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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### Learning Objective 1 **Product Tango Financial Analysis** Product Tango has reported the following financials: - Total revenue: $1,150,000 - Variable cost of goods sold: $850,000 - Variable selling and administrative expenses: $275,000 - Fixed costs: $125,000 - Resulting in an operating loss of: ($100,000) **a. Differential Analysis for February 13** To determine the future of Product Tango, evaluate whether to continue its production (Alternative 1) or discontinue it (Alternative 2), assuming fixed costs remain unchanged regardless of the decision. #### Differential Analysis Table | Metrics | Continue Product Tango (Alternative 1) | Discontinue Product Tango (Alternative 2) | Differential Effects (Alternative 2) | |-------------------------------------|----------------------------------------|-------------------------------------------|--------------------------------------| | **Revenues** | $1,150,000 | $0 | ($1,150,000) | | **Variable Cost of Goods Sold** | ($825,000) | | $850,000 | | **Variable Selling and Admin Expenses** | ($275,000) | | $275,000 | | **Fixed Costs** | ($125,000) | | $0 | | **Profit (Loss)** | ($100,000) | | ($25,000) | - **Revenues**: Continuing results in full revenue, discontinuing results in zero revenue, with a differential effect of a $1,150,000 loss. - **Costs**: - **Variable Cost of Goods Sold**: Continuing the product incurs a cost of $825,000, while discontinuing brings a benefit of $850,000. - **Variable Selling and Admin Expenses**: Savings of $275,000 are realized upon discontinuing. - **Fixed Costs**: These remain unaffected at $0 differential effect. - **Profit (Loss)**: Continuing product leads to a $100,000 loss, discontinuing results in a differential loss reduction of $25,000. **b. Recommendation** Product Tango should be **Continued**. This analysis indicates that continuing to produce Product Tango incurs losses, but discontinuing results in a higher loss in the short term due to the lack of revenue. Therefore, it is recommended to continue production for better financial performance given the current conditions.
Transcribed Image Text:### Learning Objective 1 **Product Tango Financial Analysis** Product Tango has reported the following financials: - Total revenue: $1,150,000 - Variable cost of goods sold: $850,000 - Variable selling and administrative expenses: $275,000 - Fixed costs: $125,000 - Resulting in an operating loss of: ($100,000) **a. Differential Analysis for February 13** To determine the future of Product Tango, evaluate whether to continue its production (Alternative 1) or discontinue it (Alternative 2), assuming fixed costs remain unchanged regardless of the decision. #### Differential Analysis Table | Metrics | Continue Product Tango (Alternative 1) | Discontinue Product Tango (Alternative 2) | Differential Effects (Alternative 2) | |-------------------------------------|----------------------------------------|-------------------------------------------|--------------------------------------| | **Revenues** | $1,150,000 | $0 | ($1,150,000) | | **Variable Cost of Goods Sold** | ($825,000) | | $850,000 | | **Variable Selling and Admin Expenses** | ($275,000) | | $275,000 | | **Fixed Costs** | ($125,000) | | $0 | | **Profit (Loss)** | ($100,000) | | ($25,000) | - **Revenues**: Continuing results in full revenue, discontinuing results in zero revenue, with a differential effect of a $1,150,000 loss. - **Costs**: - **Variable Cost of Goods Sold**: Continuing the product incurs a cost of $825,000, while discontinuing brings a benefit of $850,000. - **Variable Selling and Admin Expenses**: Savings of $275,000 are realized upon discontinuing. - **Fixed Costs**: These remain unaffected at $0 differential effect. - **Profit (Loss)**: Continuing product leads to a $100,000 loss, discontinuing results in a differential loss reduction of $25,000. **b. Recommendation** Product Tango should be **Continued**. This analysis indicates that continuing to produce Product Tango incurs losses, but discontinuing results in a higher loss in the short term due to the lack of revenue. Therefore, it is recommended to continue production for better financial performance given the current conditions.
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