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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 $71,000 $105,700 $45,000
Cost of goods sold (32,600) (42,300) (27,000)
Gross profit $38,400 $63,400 $18,000
Selling and administrative27400 (42,800) (25000)
expenses
Operating income (loss) $11,000 (20,600) $(7,000) Fixed costs are 20% of the cost of goods sold and 30% of the selling and administrative expenses. Rhinebeck Company assumes that fixed costs would not be materially affected if the Gloves line were discontinued.
Prepare a differential analysis dated October 31 to determine if Mufflers should be continued (Alternative 1) or discontinued (Alternative 2).

Sagot :

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Answer:

Mufflers should be continued (Alternative 1)

Explanation:

Preparation of a differential analysis dated to determine if Mufflers should be continued (Alternative 1) or discontinued (Alternative 2).

DIFFERENTIAL ANALYSIS

Continued (Alternative 1); Discontinued (Alternative 2); Differential effect on income Alternative 2)

October 31

Revenue $45,000 $0 ($45,000)

Costs:

Variable cost of goods sold ($21,600) $0 $21,600

[$27,000*(1-20%)]

Variable selling and administrative expense

($17,500) $0 $17,500

[$25,000*(1-30%)]

Fixed income ($12,900) ($12,900) $0

[($27,000*20%)+($25,000*30%)]

Income(Loss) ($7,000) ($12,900) ($5,900)

Based on the above Differential Analysis MUFFLERS SHOULD BE CONTINUED reason been that the income will decrease by $5,900 if Mufflers discontinued.

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