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Differential Cost Schedule

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The Fabulous Furniture Company manufactures three types of office furniture: Desks, Book Shelves, and Filing Cabinets. Segment data on sales and expenses for the past six months follow:

Desks Book Shelves Filing Cabinets

Sales $675,000 $1,125,000 $450,000
Variable Costs $202,500 $450,000 $247,500

Contribution Margin $472,500 $675,000 $202,500

Direct Fixed Costs $210,000 $270,000 $180,000
Allocated Fixed Costs. $135,000 $225,000 $90,000

Net Income (Loss) $127,500 $180,000 $(67,500) loss

Management is concerned about the continued losses shown by the Filing Cabinets and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce Filing Cabinets has no resale value.

Required:
Prepare a differential cost schedule to indicate whether the company should keep or drop the Filing Cabinets product line

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Solution Summary

The solution explains how to prepare a differential cost schedule.

Solution Preview

In a differential cost schedule we are interested in looking at what costs will not be there and what revenues will be eliminated.

In case the filing cabinets are eliminated, revenue ...

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