The condensed product-line income statement for Country Ceramics Company for the current year is as follows:

Fixed costs are 15% of the cost of goods sold and 28% of the selling and administrative expenses. Country Ceramics assumes that fixed costs would not be materially affected if the Cups line were discontinued.
a. Prepare a differential analysis report for all three products for 2008.
b. Should the Cups line be retained?Explain.

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Country Ceramics Company Product-Line Income Statement For the Year Ended December 3, 2008 Bowls Plates Cups Sales Cost of goods sold Gross profit Selling and administrative expenses Income from operations 132,000 71,000 61,000 35,000 108,000 55,000 53,000 24,000 26,000 29,000 (4,000) $83,000 49,000 $34,000 38,000