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Product TS- 20 has revenue of $102,000, variable cost of goods sold of$52,500, variable selling expenses of $21,500, and fixed costs of$35,000, creating a loss from operations of $7,000. Prepare a differential analysis as of September 12 to determine if Product TS-20 should be continued (Alternative 1) or discontinued (Alternative 2), assuming fixed costs are unaffected by the decision.
In this exercise, we are asked to prepare a differential analysis to determine whether the company should continue or discontinue a segment.
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BriteLite Inc. manufactures entry and dining room lighting fixtures. Five activities are used in manufacturing the fixtures. These activities and their associated activity costs and activity bases are as follows:
|Assembly||13,500||Direct labor hours|
|Inspecting||5,800||Number of inspections|
|Setup||16,800||Number of setups|
|Materials handling||3,600||Number of loads|
Corporate records were obtained to estimate the amount of activity to be used by the two products. The estimated activity-base usage quantities and units produced for each product and in total are provided in the table below.
|Direct labor hours||500||400||900|
|Number of inspections||140||150||290|
|Number of setups||80||60||140|
|Number of loads||50||40||90|
b. Use the activity rates in (a) to determine the total and per-unit activity costs associated with each product.