Product B has revenue of $39,500, variable cost of goods sold of $25,500, variable selling expenses of $16,500

Product B has revenue of $39,500, variable cost of goods sold of $25,500, variable selling expenses of $16,500, and fixed costs of $15,000, creating a loss from operations of $17,500.Prepare a differential analysis as of May 9, 2014, to determine if Product B should be continued (Alternative 1) or discontinued (Alternative 2), assuming fixed costs are unaffected by the decision.

Answer:

Differential Analysis 

Continue Product B (Alt. 1) or Discontinue Product B (Alt. 2) 

May 9, 2014 

Continue 

Product B 

(Alternative 1) 

Revenue $39,500 $ 0 –$39,500 

Costs:    

Variable cost of goods sold –25,500 0 25,500 

Variable selling and admin.    

expenses –16,500 0 16,500 

Fixed costs –15,000 –$15,000 0 

Income (Loss) –$17,500 –$15,000 $  2,500 

    

Product B should be discontinued.