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Differential Analysis for a Discontinued Product A condensed income statement by product line for Crown Beverage...

Differential Analysis for a Discontinued Product

A condensed income statement by product line for Crown Beverage Inc. indicated the following for Royal Cola for the past year:

Sales $232,400
Cost of goods sold 111,000
Gross profit $121,400
Operating expenses 144,000
Loss from operations $(22,600)

It is estimated that 16% of the cost of goods sold represents fixed factory overhead costs and that 23% of the operating expenses are fixed. Since Royal Cola is only one of many products, the fixed costs will not be materially affected if the product is discontinued.

a. Prepare a differential analysis, dated March 3, to determine whether Royal Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter zero "0". Use a minus sign to indicate a loss.

Differential Analysis
Continue Royal Cola (Alt. 1) or Discontinue Royal Cola (Alt. 2)
January 21
Continue Royal
Cola (Alternative 1)		 Discontinue Royal
Cola (Alternative 2)		 Differential Effect
on Income
(Alternative 2)
Revenues $ $ $
Costs:
Variable cost of goods sold
Variable operating expenses
Fixed costs
Income (Loss) $ $ $

b. Should Star Cola be retained? Explain.

As indicated by the differential analysis in part (A), the income would    by $ if the product is discontinued.

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ekkarill92 answered 2 years ago
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