50.1K

Verified Solution

Link Copied!

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	$65,800			$90,300			$26,300
Cost of goods sold	(26,100)			(32,700)			(15,700)
Gross profit	$39,700			$57,600			$10,600
Selling and administrative expenses	(30,400)			(33,900)			(15,500)
Operating income (loss)	$9,300			$23,700			$(4,900)

Fixed costs are 17% of the cost of goods sold and 40% 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 8809ac076fc8ffd_1	$fill in the blank 8809ac076fc8ffd_2	$fill in the blank 8809ac076fc8ffd_3
Costs:
Variable cost of goods sold	fill in the blank 8809ac076fc8ffd_4	fill in the blank 8809ac076fc8ffd_5	fill in the blank 8809ac076fc8ffd_6
Variable selling and admin. expenses	fill in the blank 8809ac076fc8ffd_7	fill in the blank 8809ac076fc8ffd_8	fill in the blank 8809ac076fc8ffd_9
Fixed costs	fill in the blank 8809ac076fc8ffd_10	fill in the blank 8809ac076fc8ffd_11	fill in the blank 8809ac076fc8ffd_12
Profit (Loss)	$fill in the blank 8809ac076fc8ffd_13	$fill in the blank 8809ac076fc8ffd_14	$fill in the blank 8809ac076fc8ffd_15

b. Should the Mufflers line be retained?

Answer & Explanation Solved by verified expert

See Answer