The condensed product-line income statement for Rhinebeck Company for the month of October is as follows:

Fixed costs are 20% of the cost of goods sold and 30% of the selling and administrative expenses. Rhinebeck Company assumes that fixed costs would not be materially affected if the Gloves line were discontinued.

a. Prepare a differential analysis dated October 31 to determine if Mufflers should be continued (Alternative 1) or discontinued (Alternative 2).

b. Should the Mufflers line be retained? Explain.

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Rhinebeck Company Product-Line Income Statement For the Month Ended October 31 Hats Mufflers Gloves Sales Cost of goods sold $ 71,000 $105,700 (42,300) $ 45,000 (32,600) $ 38,400 (27,000) $ 18,000 $ 63,400 Gross profit Selling and administrative expenses Operating income (loss) (27,400) $ 11,000 (42,800) $ 20,600 (25,000) $ (7,000)