Reference no: EM132767636

Problem - Differential Analysis - For the three cases that follow, prepare a differential analysis.

Case A (Discontinue a Product): Product K has revenue of $65,000, variable cost of goods sold of $50,000, variable selling expenses of $12,000, and fixed costs of $25,000, creating a loss from operations of $(22,000).

Required: Prepare a differential analysis dated February 22 to determine whether to continue Product K (Alternative 1) or discontinue Product K (Alternative 2), assuming fixed costs are unaffected by the decision.

Case B (Make vs. Buy): A company manufactures a component of a product for $80 per unit, including fixed costs of $25 per unit. The component could be purchased from an outside supplier for $60 per unit, plus $5 per unit freight.

Required: Prepare a differential analysis dated November 2 to determine whether the company should make (Alternative 1) or buy (Alternative 2), assuming fixed costs are unaffected by the decision.

Case C (Sell or Process Further): Product T is produced for $2.50 per gallon. Product T can be sold without additional processing for $3.50 per gallon, or processed further into Product V at an additional total cost of $0.70 per gallon. Product V can be sold for $4.00 per gallon.

Required: Prepare a differential analysis dated April 8 to determine whether to sell Product T (Alternative 1) or process it further into Product V (Alternative 2).