A condensed income statement by product line for Brion Sporting Goods indicated the following for...
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Accounting
A condensed income statement by product line for Brion Sporting Goods indicated the following for Baseball Equipment for the past year:
(All amounts in SAR)
| Sales | 5,600,000 |
| Cost of goods sold | 3,800,000 |
| Gross profit | 1,800,000 |
| Operating expenses | 1,950,000 |
| Loss from operations | (150,000) |
It is estimated that 15% of the cost of goods sold represents fixed factory overhead costs, and that 20% of the operating expenses are fixed. Because Almond Cookies is only one of the many products, the fixed costs will not be materially affected if the product is discontinued.
Required: Prepare a differential analysis to determine whether Baseball Equipment should be continued (Alternative 1) or discontinued (Alternative 2). Should Baseball Equipment be retained? Explain and indicate the dollar difference in favor or against.
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