Question 24.2: Product K has revenue of $65,000, variable cost of goods sol...

Financial and Managerial Accounting

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. Prepare a differential analysis dated February 22, 2014, to determine if Product K should be continued (Alternative 1) or discontinued (Alternative 2), assuming fixed costs are unaffected by the decision.

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Differential Analysis Continue K (Alternative 1) or Discontinue K (Alternative 2) February 22, 2014
	Continue Product K (Alternative 1)	Discontinue Product K (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues …………………………………………….	$65,000	$ 0	–$65,000
Costs:
Variable …………………………………………..	–$62,000*	$ 0	$62,000
Fixed…………………………………….	–25,000	–25,000	0
Total costs………………………………………	–$87,000	–$25,000	$62,000
Income (loss)…………………………………………	$\underline{\underline{-\$ \ 22,000}}$	$\underline{\underline{-\$ \ 25,000}}$	$\underline{\underline{-\$ \ 3,000}}$
*$50,000 + $12,000

Product K should be continued.

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