Reference no: EM131818262

Question - Differential Analysis for a Discontinued Product

The condensed product-line income statement for Porcelain Tableware Company for the month of December is as follows:

Porcelain Tableware Company Product-Line Income Statement For the Month Ended December 31, 2012
	Bowls	Plates	Cups
Sales	$65,900	$89,900	$27,500
Cost of goods sold	27,300	32,000	15,500
Gross profit	$38,600	$57,900	$12,000
Selling and administrative expenses	28,900	34,200	15,600
Income from operations	$9,700	$23,700	$(3,600)

Fixed costs are 14% of the cost of goods sold and 39% of the selling and administrative expenses. Porcelain Tableware assumes that fixed costs would not be materially affected if the Cups line were discontinued.

a. Prepare a differential analysis dated December 31, 2012, to determine if Cups should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter zero "0".

b. Should the Cups line be retained? Explain.