I. Differential analysis for a discontinued product
The summarized statement of income and expenses for the Dish N’ Dat Company product line for the month of March is as follows:
Fixed costs are 15% of cost of goods sold and 40% of selling and administrative expenses. Dish N’ Dat assumes that fixed costs would not be significantly affected if the cups line is discontinued.
a. Make a differential analysis report as of March 31 to determine if cup production should continue (Alternative 1) or if cup production should be discontinued (Alternative 2).
b. Should the production of cups (cups) be stabilized or discontinued? explain.
II. Differential analysis to rent or sell (lease or sell)
Inman Construction Company is considering selling a piece of equipment with a book value of $280,000 (original cost of $400,000 less accumulated depreciation of $120,000) for the price of $292,000, less a 5% commission on the sale. In the alternative, the machinery can be leased for a total of $312,000 for five years, after which it is expected to have no residual value. During the lease period, Inman Construction Company’s costs for repairs, insurance, and property taxes are expected to be $36,000.
Instructions:
a. Make a differential analysis report, dated January 3, 20Y9, to evaluate the decision to lease or sell the machinery.
b. According to the results obtained, would it be advisable to rent or sell (lease or sell) the machinery?
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