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

Fixed costs are 18% of the cost of goods sold and 30% of the selling and administrative expenses. Century 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 2006.
b. Should the Cups line be retained?Explain.

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Century Ceramics Company Product-Line Income Statement For the Year Ended December 31, 2006 Bowls Plates Cups $79,000 51,000 Sales Cost of goods sold Gross profit Selling and administrative expenses Income from operations 596,000 51,000 $122,000 68,000 45,000 54,000 28,000 31,000 $17,000 23,000 (6,000) 28,000 34,000