WoolCorp buys sheeps wool from farmers The company began ope

WoolCorp buys sheep’s wool from farmers. The company began operations in January of this year, and is making decisions on product offerings, pricing, and vendors. The company is also examining its method of assigning overhead to products. You’ve just been hired as a production manager at WoolCorp.
Currently WoolCorp makes three products: (1) raw, clean wool to be used as stuffing or insulation; (2) wool yarn for use in the textile industry, and (3) extra-thick yarn for use in rugs.
Upper management would like your recommendations regarding a production decision regarding their current and proposed product lines.

1)For the past year, WoolCorp has experimented with its third product, extra-thick rug yarn. The company wishes to consider whether to continue or discontinue manufacturing and selling this product. You decide to prepare a differential analysis of the income related to all three products. To begin your analysis, you review the following condensed income statement. Then scroll down to complete the differential analysis.

1. After reviewing your work on the Continue/Discontinue panel, should WoolCorp continue (Alternative 1) or discontinue (Alternative 2) the rug yarn product line? (Choose One)

Continue (Alternative 1)

Discontinue (Alternative 2)

The company is indifferent between Alternative 1 and Alternative 2.

continue For the past year, WoolCorp has experimented with its third product, extra-thick rug yarn. The company wishes to consider whether to continue or discontinue manufacturing and selling this product. You decide to prepare a differential analysis of the income related to all three produch your analysis, you review the following condensed income statement. Then scroll down to complete the dierential analysis WoolCop Condensed Income Statement For the Year Ended December 31, 20Y8 Raw Woolol Yam Rug Ya Total Company Sales 200,00000 $155,00000 $177,0000$32,000.00 | i |Cost of goods sold; $48,00000 s13,600.00? $57,19000| $103,790.00 69,18000 $3100000 6197000 1727000 120,000 00124,000.00 $1150000$359030.00 Variable costs 5 Fixed costs 32,000.00 17,401.00 24,780.00 oalcost of ols sld 580,000.00 Gross profic 8 Operating expenses s Variable expenses 10 Fixed expenses 1 Tocal operating expenses 12 Income (loss) from operations 5,000.00$7,750.00 3,120.00 565,8000 89,000.008,0000 106,20000 273,20000 ,000.00 $85,75000 159,320.00 $339,070.00 820.00 44290.00) $19,960.00 526,000.00 use a minus sign. If on amount is zero, enter to compare the effects of dropping the rug yanne of products. For those boxes in which you must enter subtracted or negative numbers

Solution

1. Form the analysis given below, we can conclude that it is better to continue the rug yarn product line.

Working:

	Alternative 1	Alternative 2	Difference
	(Continue)	(Discontinue)
Sales	532000	355000	177000
Variable Costs:
Cost of goods sold	103790	66600	37190
Operating Expenses	65870	12750	53120
Total Variable Costs	169660	79350	90310
Segment contribution margin	362340	275650	86690
Traceable Fixed costs	69180	44400	24780
Segment operating income	293160	231250	61910
Allocated fixed costs	273200	273200	0
Net operating Income	19960	-41950	61910