The condensed product-line income statement for Porcelain Tableware Company for the month of December is as follows:

Fixed costs are 15% of the cost of goods sold and 40% of the selling and administrative expenses. Porcelain Tableware assumes that fixed costs would not be materially affected if the Cups line were discontinued.
a. Prepare a differential analysis dated December 31, 2012, to determine if Cups should be continued (Alternative 1) or discontinued (Alternative 2).
b. Should the Cups line be retained? Explain.

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Porcelain Tableware Company Product-Line Income Statement For the Month Ended December 31, 2012 Bowls Plates Cups Sales Cost of goods sold Gross profit Selling and administrative expenses Income from operations $65,000 $89,400 $26,900 14,800 26,300 $38,700 32,800 $56,600 $12,100 15,400 $ (3,300) 29,400 $ 9,300 34,900 $21,700