Mastery Problem: Differential Analysis and Product Pricing

WoolCorp

WoolCorp buys sheeps wool from farmers. The company began operations in January of this year, and is making decisions on product offerings, pricing, and vendors. The company is also examining its method of assigning overhead to products. Youve just been hired as a production manager at WoolCorp.

Currently WoolCorp makes three products: (1) raw, clean wool to be used as stuffing or insulation; (2) wool yarn for use in the textile industry, and (3) extra-thick yarn for use in rugs.

Upper management would like your recommendations regarding a production decision regarding their current and proposed product lines.

Continue/Discontinue

For the past year, WoolCorp has experimented with its third product, extra-thick rug yarn. The company wishes to consider whether to continue or discontinue manufacturing and selling this product. You decide to prepare a differential analysis of the income related to all three products. To begin your analysis, you review the following condensed income statement. Then scroll down to complete the differential analysis.

WoolCorp Condensed Income Statement For the Year Ended December 31, 20Y8
	Raw Wool			Wool Yarn			Rug Yarn			Total Company
Sales		$210,000			$155,000			$167,000		$532,000
Costs of goods sold:
Variable costs	$(48,000)	$(18,600)	$(37,160)	$(103,760)
Fixed costs	(32,000)	(12,400)	(24,790)	(69,190)
Total cost of goods sold	$(80,000)	$(31,000)	$(61,950)	$(172,950)
Gross profit	$130,000	$124,000	$105,050	$359,050
Operating expenses:
Variable expenses	$(5,000)	$(7,750)	$(53,110)	$(65,860)
Fixed expenses	(89,000)	(78,000)	(106,200)	(273,200)
Total operating expenses	$(94,000)	$(85,750)	$(159,310)	$(339,060)
Operating income (loss)	$36,000	$38,250	$(54,260)	$19,990

Complete the following table using the data in the preceding income statement to compare the effects of dropping the rug yarn line of products. If required, use a minus sign to indicate a loss.

) Mastery Problem: Differential Analysis and Product Pricing WoolCorp WoolCoro buys sheep's wool from farmers. The company began operations in January of this year, and is making decisions on product offerings, pilong, and vendors. The company is also cxamiring its method of assigning overhead to products. You Vc Just been hired as a production manager at WoolCars. Currently WooCorp makes three products: (1) , clean waal to be used as stuffing or insulation; (2) waalfam for use in the textile incustry, and (3) extra thick yarn for use in rugs. Upper me wuld like your relations regarding preclucion decision in the current and proper chat lines. Continue/Discontinue For the past year, WooCorp has experimented with its their product, extra-thick rug yan. The company wishes to consider whether to continue or discontinue manufacturng and selling this product. You decide to prepare a differential analyss of the income related to all three products to begin your analysis, you review the following condensed income statement. Then scroll down to complete the differential analysis. WoolCorp Condensed Income Statement For the Year Ended December 31, 2018 Tatal Raw Wool Wool Yarn Rug Yarn Company Sales $210,000 $155.000 $167,000 $532,000 Casts of goods sold: VONS ${48,000) $(18,609) (37,160) $(103,760) rixed costs (32,000) (22.400) (24,790) (09.190) ) Total cost of goods $190,000) $131,000) $161,950) $(172.950) sold Gross profit $130.000 $124,000 $105,050 3359,050 $ Operating expenses: Variable anses $15,000) $17,750) $152.110; $(65.860) ) Fixed experts (89,000) 78,000) (106,200) (273,200) Total parating $194,000) ${85,750) $(159,310) $(339,060) expenses Operating income s) $35,000 $35,250 $(54,260) $19,990 Complete the following table using the data in the preceding income statement to compare the effects of dropping the rug yarn line of products. If required, use a minus sign to indicate a loss Differential Analysis Continue Rug Yarn (ACDecember Discontinue Rug Yarn (Alternative 2) Continue Rug Yarn (Alternative 1) Discontinue Rug Yarn (Alternative 2) Differential Effects (Alternative 2) R. Costs: Variable Fixed - Profit (ass) L