Response to the following problem:
The condensed product-line income statement for Dinner Ware Company for the month of August is as follows:
Dinner Ware Company
Product-Line Income Statement
For the Month Ended August 31, 2012
|
Bowls |
Plates
|
Cups
|
|
Sales
|
$1,500,000
|
$2,350,000
|
$ 975,000
|
|
Cost of goods sold
|
900,000
|
1,400,000
|
780,000
|
|
Gross profit
|
$ 600,000
|
$ 950,000
|
$ 195,000
|
|
Selling and administrative expenses
|
270,000
|
700,000
|
300,000
|
|
Income (loss) from operations
|
$ 330,000
|
$ 250,000
|
$(105,000)
|
Fixed costs are 40% of the cost of goods sold and 18% of the selling and administrative expenses. Dinner Ware assumes that fixed costs would not be significantly affected if the Cups line were discontinued.
a. Prepare a differential analysis report for all three products for the month ended August 31, 2012.
b. Should the Cups line be retained? Explain.