MBA 500: Accounting for Management

 For the three cases that follow, prepare a differential analysis.

• Case A (Discontinue a Product): Product K has revenue of $65,000, variable cost of goods sold of $50,000, variable selling expenses of $12,000, and fixed costs of $25,000, creating a loss from operations of $(22,000).
o Required: Prepare a differential analysis dated February 22 to determine whether to continue Product K (Alternative 1) or discontinue Product K (Alternative 2), assuming fixed costs are unaffected by the decision.

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• Case B (Make versus Buy): A company manufactures a component of a product for $80 per unit, including fixed costs of $25 per unit. The component could be purchased from an outside supplier for $60 per unit, plus $5 per unit freight.
o Required: Prepare a differential analysis dated November 2 to determine whether the company should make (Alternative 1) or buy (Alternative 2), assuming fixed costs are unaffected by the decision.

• Case C (Sell or Process Further): Product T is produced for $2.50 per gallon. Product T can be sold without additional processing for $3.50 per gallon or processed further into Product V at an additional total cost of $0.70 per gallon. Product V can be sold for $4.00 per gallon.
o Required: Prepare a differential analysis dated April 8 to determine whether to sell Product T (Alternative 1) or process it further into Product V (Alternative 2).

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Case A (Discontinue a Product): (2 points)

Continue Product K
(Alt. 1) Discontinue Product K
(Alt. 2) Differential Effects
(Alt. 2)

Revenues

Costs:

Variable

Fixed

Profit (loss)

Here is the partial answer. You have to finish the rest.

Case B (Make vs. Buy): (2 points)

Make Component
(Alt. 1) Buy Component
(Alt. 2) Differential Effects
(Alt. 2)

Unit costs:

Purchase price

Freight

Variable costs

Fixed factory
overhead

Total unit costs

Here is the partial answer. You have to finish the rest.

Case C (Sell or Process Further): (1 point)

Sell Product T
(Alt. 1) Process Further
Product V
(Alt. 2) Differential Effects
(Alt. 2)

Revenues

Costs, per unit

Profit (loss) 

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