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)