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Differential Cost Schedule

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.

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

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 ...

Solution Summary

The solution explains how to prepare a differential cost schedule.