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Differential Analysis for a Discontinued Product The condensed product-line income statement for Northern Lights Company for the month of August is as follows: Northern Lights Company Product-Line Income Statement For the Month Ended August 31 Sales Cost of goods sold Gross profit Selling and administrative expenses Operating income (loss) Line Item Description Revenues Costs: Variable cost of goods sold Variable selling and admin. expenses Fixed costs Hats Profit (Loss) $65,500 (27,300) $38,200 (28,900) $9,300 Fixed costs are 16% of the cost of goods sold and 45% of the selling and administrative expenses. Northern Lights Company assumes that fixed costs would not be materially affected if the Socks line were discontinued. a. Prepare a differential analysis dated August 31 to determine if Socks 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) Socks August 31 Gloves $88,700 (33,700) $55.000 (35,900) $19,100 Socks 100000 0 0000 Continue Socks Discontinue Differential Effects (Alternative 1) (Alternative 2) (Alternative 2) Socks $26,400 (15,400) $11,000 (15,900) $(4,900)

Differential Analysis for a Discontinued Product The condensed product-line income statement for Northern Lights Company for the month of August is as follows: Northern Lights Company Product-Line Income Statement For the Month Ended August 31 Sales Cost of goods sold Gross profit Selling and administrative expenses Operating income (loss) Line Item Description Revenues Costs: Variable cost of goods sold Variable selling and admin. expenses Fixed costs Hats Profit (Loss) $65,500 (27,300) $38,200 (28,900) $9,300 Fixed costs are 16% of the cost of goods sold and 45% of the selling and administrative expenses. Northern Lights Company assumes that fixed costs would not be materially affected if the Socks line were discontinued. a. Prepare a differential analysis dated August 31 to determine if Socks 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) Socks August 31 Gloves $88,700 (33,700) $55.000 (35,900) $19,100 Socks 100000 0 0000 Continue Socks Discontinue Differential Effects (Alternative 1) (Alternative 2) (Alternative 2) Socks $26,400 (15,400) $11,000 (15,900) $(4,900)

Managerial Accounting
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter11: Differential Analysis And Product Pricing
Section: Chapter Questions
Problem 4E: Differential analysis for a discontinued product The condensed product-line income statement for...
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Differential Analysis for a Discontinued Product The condensed product-line income statement for Northern Lights Company for the month of August is as follows: Northern Lights Company Product-Line Income Statement For the Month Ended August 31 Sales Cost of goods sold Gross profit Selling and administrative expenses Operating income (loss) Line Item Description Revenues Costs: Fixed costs are 16% of the cost of goods sold and 45% of the selling and administrative expenses. Northern Lights Company assumes that fixed costs would not be materially affected if the Socks line were discontinued. a. Prepare a differential analysis dated August 31 to determine if Socks 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) Socks August 31 Variable cost of goods sold Variable selling and admin. expenses Fixed costs Hats $65,500 (27,300) $38,200 (28,900) $9,300 Profit (Loss) Gloves $88,700 (33,700) $55,000 (35,900) $19,100 100000 Q0000 Continue Discontinue Differential Effects Socks (Alternative 1) (Alternative 2) (Alternative 2) Socks Socks $26,400 (15,400) $11,000 (15,900) $(4,900)
Transcribed Image Text:Differential Analysis for a Discontinued Product The condensed product-line income statement for Northern Lights Company for the month of August is as follows: Northern Lights Company Product-Line Income Statement For the Month Ended August 31 Sales Cost of goods sold Gross profit Selling and administrative expenses Operating income (loss) Line Item Description Revenues Costs: Fixed costs are 16% of the cost of goods sold and 45% of the selling and administrative expenses. Northern Lights Company assumes that fixed costs would not be materially affected if the Socks line were discontinued. a. Prepare a differential analysis dated August 31 to determine if Socks 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) Socks August 31 Variable cost of goods sold Variable selling and admin. expenses Fixed costs Hats $65,500 (27,300) $38,200 (28,900) $9,300 Profit (Loss) Gloves $88,700 (33,700) $55,000 (35,900) $19,100 100000 Q0000 Continue Discontinue Differential Effects Socks (Alternative 1) (Alternative 2) (Alternative 2) Socks Socks $26,400 (15,400) $11,000 (15,900) $(4,900)
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