Rhinebeck Company Product-Line Income Statement For the Month Ended October 31 Hats $ 71,000 (32,600) $ 38,400 (27,400) $ 11,000 Gloves Mufflers Sales $105,700 $ 45,000 Cost of goods sold Gross profit Selling and adminilstrative expenses Operating Income (loss) (42,300) $ 63,400 (42,800) $ 20,600 (27,000) $ 18,000 (25,000) $ (7,000)

Intermediate Accounting: Reporting And Analysis
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Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter7: Inventories: Cost Measurement And Flow Assumptions
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Problem 3RE: Reid Company uses the periodic inventory system. On January 1, it had an inventory balance of...
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Differential analysis for a discontinued product

The condensed product-line income statement for Rhinebeck Company for the month of

October is as follows: (Refer the image ) 

Fixed costs are 20% of the cost of goods sold and 30% of the selling and administrative expenses. Rhinebeck Company assumes that fixed costs would not be materially affected if the Gloves line were discontinued.

a. Prepare a differential analysis dated October 31 to determine if Mufflers should be continued (Alternative 1) or discontinued (Alternative 2).
b. Should the Mufflers line be retained? Explain.

 

Rhinebeck Company
Product-Line Income Statement
For the Month Ended October 31
Hats
$ 71,000
(32,600)
$ 38,400
(27,400)
$ 11,000
Gloves
Mufflers
Sales
$105,700 $ 45,000
Cost of goods sold
Gross profit
Selling and adminilstrative expenses
Operating Income (loss)
(42,300)
$ 63,400
(42,800)
$ 20,600
(27,000)
$ 18,000
(25,000)
$ (7,000)
Transcribed Image Text:Rhinebeck Company Product-Line Income Statement For the Month Ended October 31 Hats $ 71,000 (32,600) $ 38,400 (27,400) $ 11,000 Gloves Mufflers Sales $105,700 $ 45,000 Cost of goods sold Gross profit Selling and adminilstrative expenses Operating Income (loss) (42,300) $ 63,400 (42,800) $ 20,600 (27,000) $ 18,000 (25,000) $ (7,000)
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