The condensed product line income statement for Country Ceramics Company for the current year is as follows:
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Country Ceramics Company |
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Product Line Income Statement |
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For the Year Ended December 31, 2008 |
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Bowls |
Plates |
Cups |
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Sales |
$132,000 |
$108,000 |
$83,000 |
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Cost of goods sold |
71,000 |
55,000 |
49,000 |
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Gross profit |
$ 61,000 |
$ 53,000 |
$34,000 |
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Selling and administrative expenses |
35,000 |
24,000 |
38,000 |
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Income from operations |
$ 26,000 |
$ 29,000 |
$ (4,000) |
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Fixed costs are 15% of the cost of goods sold and 28% of the selling and administrative expenses. Country Ceramics assumes that fixed costs would not be materially affected if the Cups line were discontinued.
a. Prepare a differential analysis report for all three products for 2008.
b. Should the Cups line be retained? Explain.