WoolCorp buys sheep’s 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. You’ve 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. 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 1 Raw Wool Wool Yarn Rug Yarn Total Company 2 Sales $200,000.00 $155,000.00 $197,000.00 $552,000.00 3 Cost of goods sold: 4 Variable costs $48,000.00 $18,600.00 $37,200.00 $103,800.00 5 Fixed costs 32,000.00 12,400.00 24,780.00 69,180.00 6 Total cost of goods sold $80,000.00 $31,000.00 $61,980.00 $172,980.00 7 Gross profit $120,000.00 $124,000.00 $135,020.00 $379,020.00 8 Operating expenses: 9 Variable expenses $5,000.00 $7,750.00 $53,080.00 $65,830.00 10 Fixed expenses 89,000.00 77,000.00 106,200.00 272,200.00 11 Total operating expenses $94,000.00 $84,750.00 $159,280.00 $338,030.00 12 Income (loss) from operations $26,000.00 $39,250.00 $(24,260.00) $40,990.00 Complete the following table using the data in the preceding income statement to compare the effects of dropping the rug yarn line of products. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If an amount is zero, enter “0”. Differential Analysis Continue Rug Yarn (Alternative 1) or Discontinue Rug Yarn (Alternative 2) December 31, 20Y8 1 Continue Rug Yarn (Alternative 1) Discontinue Rug Yarn (Alternative 2) Differential Effect on Income (Alternative 2) 2 Revenues 3 Costs: 4 Variable 5 Fixed 6 Income (loss)
WoolCorp buys sheep’s 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. You’ve 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. 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 1 Raw Wool Wool Yarn Rug Yarn Total Company 2 Sales $200,000.00 $155,000.00 $197,000.00 $552,000.00 3 Cost of goods sold: 4 Variable costs $48,000.00 $18,600.00 $37,200.00 $103,800.00 5 Fixed costs 32,000.00 12,400.00 24,780.00 69,180.00 6 Total cost of goods sold $80,000.00 $31,000.00 $61,980.00 $172,980.00 7 Gross profit $120,000.00 $124,000.00 $135,020.00 $379,020.00 8 Operating expenses: 9 Variable expenses $5,000.00 $7,750.00 $53,080.00 $65,830.00 10 Fixed expenses 89,000.00 77,000.00 106,200.00 272,200.00 11 Total operating expenses $94,000.00 $84,750.00 $159,280.00 $338,030.00 12 Income (loss) from operations $26,000.00 $39,250.00 $(24,260.00) $40,990.00 Complete the following table using the data in the preceding income statement to compare the effects of dropping the rug yarn line of products. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If an amount is zero, enter “0”. Differential Analysis Continue Rug Yarn (Alternative 1) or Discontinue Rug Yarn (Alternative 2) December 31, 20Y8 1 Continue Rug Yarn (Alternative 1) Discontinue Rug Yarn (Alternative 2) Differential Effect on Income (Alternative 2) 2 Revenues 3 Costs: 4 Variable 5 Fixed 6 Income (loss)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Concept explainers
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Question
WoolCorp buys sheep’s 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. You’ve 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.
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
|
|
1
|
|
Raw Wool
|
Wool Yarn
|
Rug Yarn
|
Total Company
|
|
2
|
Sales
|
$200,000.00
|
$155,000.00
|
$197,000.00
|
$552,000.00
|
|
3
|
Cost of goods sold:
|
|
|
|
|
|
4
|
Variable costs
|
$48,000.00
|
$18,600.00
|
$37,200.00
|
$103,800.00
|
|
5
|
Fixed costs
|
32,000.00
|
12,400.00
|
24,780.00
|
69,180.00
|
|
6
|
Total cost of goods sold
|
$80,000.00
|
$31,000.00
|
$61,980.00
|
$172,980.00
|
|
7
|
Gross profit
|
$120,000.00
|
$124,000.00
|
$135,020.00
|
$379,020.00
|
|
8
|
Operating expenses:
|
|
|
|
|
|
9
|
Variable expenses
|
$5,000.00
|
$7,750.00
|
$53,080.00
|
$65,830.00
|
|
10
|
Fixed expenses
|
89,000.00
|
77,000.00
|
106,200.00
|
272,200.00
|
|
11
|
Total operating expenses
|
$94,000.00
|
$84,750.00
|
$159,280.00
|
$338,030.00
|
|
12
|
Income (loss) from operations
|
$26,000.00
|
$39,250.00
|
$(24,260.00)
|
$40,990.00
|
Complete the following table using the data in the preceding income statement to compare the effects of dropping the rug yarn line of products. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If an amount is zero, enter “0”.
|
Differential Analysis
|
|
Continue Rug Yarn (Alternative 1) or Discontinue Rug Yarn (Alternative 2)
|
|
December 31, 20Y8
|
|
1
|
|
Continue Rug Yarn (Alternative 1)
|
Discontinue Rug Yarn (Alternative 2)
|
Differential Effect on Income (Alternative 2)
|
|
2
|
Revenues
|
|
|
|
|
3
|
Costs:
|
|
|
|
|
4
|
Variable
|
|
|
|
|
5
|
Fixed
|
|
|
|
|
6
|
Income (loss)
|
|
|
|
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education