Answer the following question (1), then fill in table (2). 1. After reviewing your work on the Continue/Discontinue panel, should WoolCorp continue (Alternative 1) or discontinue (Alternative 2) the rug yarn product line? A. Continue (Alternative 1) B. Discontinue (Alternative 2) C. The company is indifferent between Alternative 1 and Alternative 2. 2. The following table shows several business decisions that might need to be made across the top row. Along the left-hand column, there are important factors to consider. Choose the factor(s) that are important to the decision. Check all that apply. If the factor is not important to any of the decisions, check the “Not Important” box.
Answer the following question (1), then fill in table (2). 1. After reviewing your work on the Continue/Discontinue panel, should WoolCorp continue (Alternative 1) or discontinue (Alternative 2) the rug yarn product line? A. Continue (Alternative 1) B. Discontinue (Alternative 2) C. The company is indifferent between Alternative 1 and Alternative 2. 2. The following table shows several business decisions that might need to be made across the top row. Along the left-hand column, there are important factors to consider. Choose the factor(s) that are important to the decision. Check all that apply. If the factor is not important to any of the decisions, check the “Not Important” box.
Principles of Cost Accounting
17th Edition
ISBN:9781305087408
Author:Edward J. Vanderbeck, Maria R. Mitchell
Publisher:Edward J. Vanderbeck, Maria R. Mitchell
Chapter10: Cost Analysis For Management Decision Making
Section: Chapter Questions
Problem 18E
Related questions
Question
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
|
$210,000.00
|
$155,000.00
|
$167,000.00
|
$532,000.00
|
3
|
Cost of goods sold:
|
|
|
|
|
4
|
Variable costs
|
$48,000.00
|
$18,600.00
|
$37,180.00
|
$103,780.00
|
5
|
Fixed costs
|
32,000.00
|
12,400.00
|
24,800.00
|
69,200.00
|
6
|
Total cost of goods sold
|
$80,000.00
|
$31,000.00
|
$61,980.00
|
$172,980.00
|
7
|
Gross profit
|
$130,000.00
|
$124,000.00
|
$105,020.00
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$359,020.00
|
8
|
Operating expenses:
|
|
|
|
|
9
|
Variable expenses
|
$5,000.00
|
$7,750.00
|
$53,100.00
|
$65,850.00
|
10
|
Fixed expenses
|
89,000.00
|
77,500.00
|
106,200.00
|
272,700.00
|
11
|
Total operating expenses
|
$94,000.00
|
$85,250.00
|
$159,300.00
|
$338,550.00
|
12
|
Income (loss) from operations
|
$36,000.00
|
$38,750.00
|
$(54,280.00)
|
$20,470.00
|
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)
|
|
|
|
Answer the following question (1), then fill in table (2).
1. After reviewing your work on the Continue/Discontinue panel, should WoolCorp continue (Alternative 1) or discontinue (Alternative 2) the rug yarn product line?
A. Continue (Alternative 1)
B. Discontinue (Alternative 2)
C. The company is indifferent between Alternative 1 and Alternative 2.
2. The following table shows several business decisions that might need to be made across the top row. Along the left-hand column, there are important factors to consider.
Choose the factor(s) that are important to the decision. Check all that apply. If the factor is not important to any of the decisions, check the “Not Important” box.
|
Lease or Sell
|
Sell or Process Further
|
Special Price Order
|
Make or Buy
|
Continue or Discontinue
|
Production Bottleneck
|
Not Important
|
|
---|---|---|---|---|---|---|---|---|
Impact on regular prices |
|
|
|
|
|
|
|
|
Contribution margin per bottleneck hour |
|
|
|
|
|
|
|
|
Differential revenue is more than differential cost |
|
|
|
|
|
|
|
|
Supplier price is less than WoolCorp’s variable cost per unit |
|
|
|
|
|
|
|
|
Sunk costs |
|
|
|
|
|
|
|
|
Robinson-Patman Act |
|
|
|
|
|
|
|
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