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 $64,800 $90,000 $26,000 Cost of goods sold (26,800) (33,100) (15,000) Gross profit $38,000 $56,900 $11,000 Selling and administrative expenses (29,800) (34,600) (14,700) Operating income (loss) $8,200 $22,300 $(3,700) Fixed costs are 16% of the cost of goods sold and 38% 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 $fill in the blank $fill in the blank Costs: Variable cost of goods sold fill in the blank fill in the blank fill in the blank Variable selling and admin. expenses fill in the blank fill in the blank fill in the blank Fixed costs fill in the blank fill in the blank fill in the blank Profit (Loss) $fill in the blank $fill in the blank $fill in the blank b. Should the Mufflers line be retained?
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
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 | $64,800 | $90,000 | $26,000 | |||||
| Cost of goods sold | (26,800) | (33,100) | (15,000) | |||||
| Gross profit | $38,000 | $56,900 | $11,000 | |||||
| Selling and administrative expenses | (29,800) | (34,600) | (14,700) | |||||
| Operating income (loss) | $8,200 | $22,300 | $(3,700) |
Fixed costs are 16% of the cost of goods sold and 38% 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 | $fill in the blank | $fill in the blank |
| Costs: | |||
| Variable cost of goods sold | fill in the blank | fill in the blank | fill in the blank |
| Variable selling and admin. expenses | fill in the blank | fill in the blank | fill in the blank |
| Fixed costs | fill in the blank | fill in the blank | fill in the blank |
| $fill in the blank | $fill in the blank | $fill in the blank |
b. Should the Mufflers line be retained?
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