The condensed product-line income statement for Northern Lights Company for the month of August is as follows: Northern Lights CompanyProduct-Line Income StatementFor the Month Ended August 31 Line Item Description Hats Gloves Socks Sales $65,500 $88,800 $27,500 Cost of goods sold (26,900) (33,400) (15,100) Gross profit $38,600 $55,400 $12,400 Selling and administrative expenses (29,000) (34,600) (15,200) Operating income (loss) $9,600 $20,800 $(2,800) Fixed costs are 17% of the cost of goods sold and 37% of the selling and administrative expenses. Northern Lights Company assumes that fixed costs would not be materially affected if the Socks line were discontinued. Question Content Area 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 AnalysisContinue (Alt. 1) or Discontinue (Alt. 2) SocksAugust 31 Line Item Description ContinueSocks(Alternative 1) DiscontinueSocks(Alternative 2) DifferentialEffects(Alternative 2) Revenues $Revenues $Revenues $Revenues Costs: Variable cost of goods sold Variable cost of goods sold Variable cost of goods sold Variable cost of goods sold Variable selling and admin. expenses Variable selling and admin. expenses Variable selling and admin. expenses Variable selling and admin. expenses Fixed costs Fixed costs Fixed costs Fixed costs Profit (Loss) $Profit (Loss) $Profit (Loss) $Profit (Loss)

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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Line Item Description	Hats	Gloves	Socks
Sales	$65,500	$88,800	$27,500
Cost of goods sold	(26,900)	(33,400)	(15,100)
Gross profit	$38,600	$55,400	$12,400
Selling and administrative expenses	(29,000)	(34,600)	(15,200)
Operating income (loss)	$9,600	$20,800	$(2,800)

Question Content Area

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 AnalysisContinue (Alt. 1) or Discontinue (Alt. 2) SocksAugust 31

Line Item Description	Continue Socks (Alternative 1)	Discontinue Socks (Alternative 2)	Differential Effects (Alternative 2)
Revenues	$Revenues	$Revenues	$Revenues
Costs:
Variable cost of goods sold	Variable cost of goods sold	Variable cost of goods sold	Variable cost of goods sold
Variable selling and admin. expenses	Variable selling and admin. expenses	Variable selling and admin. expenses	Variable selling and admin. expenses
Fixed costs	Fixed costs	Fixed costs	Fixed costs
Profit (Loss)	$Profit (Loss)	$Profit (Loss)	$Profit (Loss)