![Financial and Managerial Accounting - With CengageNow](https://www.bartleby.com/isbn_cover_images/9781337577809/9781337577809_largeCoverImage.gif)
Financial and Managerial Accounting - With CengageNow
14th Edition
ISBN: 9781337577809
Author: WARREN
Publisher: CENGAGE L
expand_more
expand_more
format_list_bulleted
Question
Chapter 24, Problem 24.6EX
To determine
Differential Analysis: Differential analysis refers to the analysis of differential revenue that could be gained or differential cost that could be incurred from the available alternative options of business.
To Identify: The flaw in the decision of assuming that fixed costs would not be materially affected by discontinuation of the Children’s shoes.
Expert Solution & Answer
![Check Mark](/static/check-mark.png)
Trending nowThis is a popular solution!
![Blurred answer](/static/blurred-answer.jpg)
Students have asked these similar questions
The management of Wengel Corporation is considering dropping product B90D. Data from the company's accounting system appear
below:
Sales
Variable expenses
Fixed manufacturing expenses
Fixed selling and administrative expenses
All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has
revealed that $179,000 of the fixed manufacturing expenses and $155,200 of the fixed selling and administrative expenses are
avoidable if product B90D is discontinued.
Required:
What would be the financial advantage (disadvantage) of dropping B90D? Should the product be dropped?
Net operating income (loss) would
$ 745,000
$ 387,000
$ 253,400
$216,200
decline
increase
by
if product B90D were dropped. Therefore, the product
dropped
Top managers of Vermont Flooring are alarmed by their operating losses. They are considering dropping the laminate flooring product line. Company accountants have prepared the following analysis to help make this decision in the chart below:
Total fixed costs will not change if the company stops selling laminate flooring.
Requirements
1. Prepare an incremental analysis to show whether Vermont Flooring should discontinue the laminate flooring product line. Will discontinuing laminate flooring add $28,000 to operating income? Explain.
2. Assume that the company can avoid $32,000 of fixed expenses by discontinuing the laminate flooring product line (these costs are direct fixed costs of the laminate flooring product line). Prepare an incremental analysis to show whether the company should stop selling laminate flooring.
3. Now, assume that all of the fixed costs assigned to laminate flooring are direct fixed costs and can be avoided if the company stops selling laminate flooring. However,…
Stretch Inc. sells both yoga pants and yoga mats. Manager for Stretch are concerned about their operating losses. They are considering dropping their yoga mat product line. Operating income by product line and in total is shown below. 1) Prepare a new operating income analysis assuming Stretch will only sell yoga pants. 2) Then explain why Stretch should drop or not drop the yoga mat product line based on your analysis. All fixed costs are allocated fixed costs.
Income Statement for year ended December 31, 2020
Sales Revenue Total $425,000 Yoga Pants $299,000 Yoga Mats $126,000
Variable Costs $221,000 Yoga Pants $136,000 Yoga Mats $ 85,000
Contribution Margin $204,000 Yoga Pants 163,000 Yoga Mats $41,000
Fixed Costs:
Fixed Manufacturing Total $127,000 Yoga Pants $62,000 Yoga Mats $65,000
Selling & Administrative Total $64,000 Yoga Pants $46,000 Yoga Mats $18,000
Operating Income Total$13,000 Yoga Pants $55,000 Yoga Mats (42,000)
Chapter 24 Solutions
Financial and Managerial Accounting - With CengageNow
Ch. 24 - Explain the meaning of (A) differential revenue,...Ch. 24 - A company could sell a building for 250,000 or...Ch. 24 - A chemical company has a commodity-grade and...Ch. 24 - A company accepts incremental business at a...Ch. 24 - Prob. 5DQCh. 24 - Prob. 6DQCh. 24 - In the long run, the normal selling price must he...Ch. 24 - Although the cost-plus approach to product pricing...Ch. 24 - Prob. 9DQCh. 24 - What is the appropriate measure of a products...
Ch. 24 - Lease or sell McFadden Company owns equipment with...Ch. 24 - Prob. 24.2BECh. 24 - Make or buy A company manufactures various-sized...Ch. 24 - Replace equipment A machine with a book value of...Ch. 24 - Process or sell Product J19 is produced for 11 per...Ch. 24 - Accept business at special price Product A is...Ch. 24 - Product cost markup percentage Green Thumb Garden...Ch. 24 - Prob. 24.8BECh. 24 - Differential analysis for a lease or sell decision...Ch. 24 - Prob. 24.2EXCh. 24 - Differential analysis for a discontinued product A...Ch. 24 - Differential analysis for a discontinued product...Ch. 24 - Prob. 24.5EXCh. 24 - Prob. 24.6EXCh. 24 - Make-or-buy decision Fremont Computer Company has...Ch. 24 - Make-or-buy decision for a service company The...Ch. 24 - Machine replacement decision A company is...Ch. 24 - Differential analysis for machine replacement Kim...Ch. 24 - Sell or process further Calgary Lumber Company...Ch. 24 - Sell or process further Rise N Shine Coffee...Ch. 24 - Decision on accepting additional business...Ch. 24 - Accepting business at a special price Portable...Ch. 24 - Prob. 24.15EXCh. 24 - Product cost method of product pricing La Femme...Ch. 24 - Product cost method of product costing Smart...Ch. 24 - Target costing Toyota Motor Corporation uses...Ch. 24 - Target costing Instant Image Inc. manufactures...Ch. 24 - Prob. 24.20EXCh. 24 - Product decisions under bottlenecked operations...Ch. 24 - Appendix Total cost method of product pricing...Ch. 24 - Appendix Variable cost method of product pricing...Ch. 24 - Differential analysis involving opportunity costs...Ch. 24 - Differential analysis for machine replacement...Ch. 24 - Differential analysis for sales promotion proposal...Ch. 24 - Differential analysis for further processing The...Ch. 24 - Prob. 24.5APRCh. 24 - Product pricing and profit analysis with...Ch. 24 - Differential analysis involving opportunity costs...Ch. 24 - Differential analysis for machine replacement...Ch. 24 - Differential analysis for sales promotion proposal...Ch. 24 - Differential analysis for further processing The...Ch. 24 - Prob. 24.5BPRCh. 24 - Prob. 24.6BPRCh. 24 - Service yield pricing and differential analysis...Ch. 24 - Prob. 2ADMCh. 24 - Prob. 3ADMCh. 24 - Ethics in Action Aaron McKinney is a cost...Ch. 24 - Prob. 24.3TIF
Knowledge Booster
Similar questions
- Variable and Absorption Costing-Three Products Winslow Inc. manufactures and sells three types of shoes. The income statements prepared under the absorption costing method for the three shoes are as follows: Winslow Inc. Product Income Statements-Absorption Costing For the Year Ended December 31, 20Y1 Fixed costs: Cross Training Shoes Golf Shoes Running Shoes Revenues $521,500 $302,500 Cost of goods sold (271,200) (148,200) Gross profit $250,300 $154,300 Selling and administrative expenses (215,300) (111,100) Operating income $35,000 $43,200 In addition, you have determined the following information with respect to allocated fixed costs: Cross Training Shoes $260,200 (174,300) $85,900 (143,500) $(57,600) Golf Running Shoes Shoes Cost of goods sold $83,400 $39,300 $36,400 Selling and administrative expenses 62,600 36,300 36,400 These fixed costs are used to support all three product lines and will not change with the elimination of any one product. In addition, you have determined that…arrow_forwardEllie Ice-cream’s owner is disturbed by the poor profit performance of his ice cream counter. He has prepared the following profit analyses for the year just ended: The owner is thinking the elimination of this counter. If it is eliminated then: Depreciation of counter equipment is avoidable The supervisory salaries is avoidable The insurance expense is unavoidable The depreciation of building unavoidable The general overhead is unavoidable Required:a) Should the company eliminate the counter or not? Fill in the table and justify your answer. b) Mention at least three relevant costs.arrow_forwardClothing Retail Store's accountant prepared the following income statement for the teenagers' accessories product line: Sales Less: Variable expenses Contribution margin Less: Fixed expenses: Wages Insurance on inventory Advertising Net operating income (loss) Sales $1,035,000 57,500 632,500 Management is concerned about the loss and is considering dropping the product line. If the product line is dropped, a job has to be created elsewhere for a long-term employee currently earning an annual salary of $101,500. Fixed expenses $2,875,000 1,351, 250 1,523,750 Required: Calculate the increase or decrease in the operating income in both alternatives. Net operating income (loss) 1,725,000 $ (201,250) Keep Accesories Product Line Drop Accesories Product Linearrow_forward
- Day Street Deli’s owner is disturbed by the poor profit performance of his ice cream counter.He has prepared the following profit analysis for the year just ended: he owner is thinking the elimination of this counter. If it is eliminated then: ✓ Depreciation of counter equipment is avoidable ✓ The supervisory salaries is avoidable✓ The insurance expense is unavoidable ✓ The depreciation of building unavoidable ✓ The general overhead is unavoidable Required:a) Should the company eliminate the counter or not? Show your calculations and justify your answer.b) Mention at least three relevant costs.arrow_forwardMaking decisions about dropping a product Top managers of Video Avenue are alarmed by their operating losses. They are considering dropping the DVD product line. Company accountants have prepared the following analysis to help make this decision: Total fixed costs will not change if the company stops selling DVDs. Requirements Prepare a differential analysis to show Whether Video Avenue should drop the DVD Product fins. Will dropping DVDs add $37,000 to operating income? Explain.arrow_forwardLittle Cory Corporation is considering dropping product G41O. Data from the company's accounting system appear below: All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $117,000 of the fixed manufacturing expenses and $46,000 of the fixed selling and administrative expenses are avoidable if product G41O is discontinued.Required:a. According to the company's accounting system, what is the net operating income earned by product G41O? b. What would be the effect on the company's overall net operating income of dropping product G41O? Should the product be dropped? There is not a word length requirement for this question; however, you must show your work. sales 450,000 variable expenses 185,000 fixesd manufacturing expenses 149,000 fixed selling and administered expenses 113,000arrow_forward
- Top managers of Movie Street are alarmed by their operating losses. They are considering dropping the DVD product line. Company accountants have prepared the following analysis to help make this decision: Assume that Movie Street can avoid $39,000 of fixed costs by dropping the DVD product line (these costs are direct fixed costs of the DVD product line). E (Click the icon to view the analysis.) Prepare a differential analysis to show whether Movie Street should stop selling DVDS. (Enter decreases to revenues with a parentheses or minus sign.) Expected decrease in revenues Data Table Expected decrease in costs: Variable costs Movie Street Fixed costs Income Statement Expected decrease in total costs For the Year Ended December 31, 2018 Expected | in operating income Total Blu-ray Discs DVD Discs Decision: Net Sales Revenue $ 424,000 $ 300,000 $ 124,000 248,000 153,000 95,000 Variable Costs Contribution Margin 176,000 147,000 29,000 Fixed Costs: Manufacturing 130,000 74,000 56,000…arrow_forwardThe manager of Sunshine bakery is disappointed with the reported net income for the period. The bakery recorded a loss for the period. The manager does not understand how demand can be so high for baked goods but profits low. Suggest reasons why the bakery high demand may not lead to profit. Recommend the type of analysis that should be done to pinpoint the problem.arrow_forward(a) Based on new number of orders in Requirement 2, what is the customer margin under activity-based costing when the data are corrected? (Enter a loss as a negative amount.) Customer margin under activity-based costing [ ] I got $(7,840) but it was incorrect. :( (b) Based on new number of orders in Requirement 2, what is the product margin under the traditional costing system when the data are corrected? (Enter a loss as a negative amount.) Product margin under the traditional costing system $(10,800) I got $(10,800) and it was correct. :) (c) Which of the following statements are true about what happens when the percentage of selling and administrative overhead attributable to processing orders declines and the percentage of selling and administrative overhead attributable to supporting customers increases by the same amount? (You may select more than one answer.) check all that apply When the percentage of selling and administrative…arrow_forward
- Making decisions about dropping a product Members of the board of directors of Security Team have received the following operating income data for the year ended March 31, 2018: Members of the board are surprised that the industrial systems product line is losing money. They commission a study to determine whether the company should drop the line. Company accountants estimate that dropping industrial systems will decrease fixed cost of goods sold by $81,000 and decrease fixed selling and administrative expenses by $15,000. Requirements Prepare a differential analysis to show whether Security Team should drop the industrial systems product line. Prepare contribution margin income statements to show Security Team’s total operating income under the two alternatives: (a) with the industrial systems line and without the line. Compare the difference between the two alternatives’ income numbers to your answer to Requirement l. What have you learned from this comparison in Requirement 2?arrow_forwardQuestion 1.Good Dentist Ltd. produces three distinct products and sells them in bulk to smaller retailers. Itsmanagers are concerned that the company's profit is not as high as its competitors. They believethey fall in profits could be caused due to the company's uncompetitive selling price(s), for one ormore product, and losses on other products. Details of the company's costs and selling prices are asfollows:Product Dental Tool Kit Dental Whitening Kit Electric Toothbrush£ £ £Selling Price 14.00 40.00 50.00Direct CostsLabour 4.00 9.00 15.00Direct Material - nylon bristles 5.00Direct Material - other 3.00 21.00 15.00Total Direct Cost 7.00 30.00 35.00Units produced 4,000 5,000 7,000Labour hours 1 hour per unit 2 hour per unit 2 hour per unitCurrently the company uses the traditional method of allocating indirect overheads but isconsidering using the ABC method for increasing the accuracy. The company's indirect overheadsare as follows:£Depreciation 20,000Purchasing Expenses…arrow_forwardExtreme Sports sells logo sports merchandise. The company is contemplating whether or not to continue its custom embroidery service. All of the companys direct fixed costs can be avoided if a segment is dropped. This information is available for the segments. A. What will be the impact on net income if the embroidery segment is dropped? B. Assume that if the embroidery segment is dropped, apparel sales will increase 10%. What is the impact on the contribution margin and net income solely for the apparel? C. Identify one cost that is not relevant in this analysis.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning
- Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax CollegeCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337912020/9781337912020_smallCoverImage.jpg)
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337902663/9781337902663_smallCoverImage.jpg)
Financial And Managerial Accounting
Accounting
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:Cengage Learning,
![Text book image](https://www.bartleby.com/isbn_cover_images/9781305961883/9781305961883_smallCoverImage.gif)
Survey of Accounting (Accounting I)
Accounting
ISBN:9781305961883
Author:Carl Warren
Publisher:Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
![Text book image](https://www.bartleby.com/isbn_cover_images/9781305970663/9781305970663_smallCoverImage.gif)
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning