Question

8.

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

Sales	$233,700
Cost of goods sold	(108,000)
Gross profit	$125,700
Operating expenses	(145,000)
Operating loss	$(19,300)

It is estimated that 12% of the cost of goods sold represents fixed factory overhead costs and that 23% of the operating expenses are fixed. Because Mango 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 February 29 to determine whether Mango Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.

Differential Analysis
Continue (Alt. 1) or Discontinue (Alt. 2) Mango Cola
February 29
	Continue Mango Cola (Alternative 1)	Discontinue Mango Cola (Alternative 2)	Differential Effects (Alternative 2)
Revenues	$	$	$
Costs:
Variable cost of goods sold
Variable operating expenses
Fixed costs
Profit (Loss)	$	$

6.

Product A is normally sold for $42 per unit. A special price of $32 is offered for the export market. The variable production cost is $24 per unit. An additional export tariff of 15% of revenue must be paid for all export products. Assume there is sufficient capacity for the special order.

a. Prepare a differential analysis dated March 16 on whether to reject (Alternative 1) or accept (Alternative 2) the special order. If required, round your answers to two decimal places. If an amount is zero, enter "0".

Differential Analysis
Reject Order (Alt. 1) or Accept Order (Alt. 2)
March 16
	Reject Order (Alternative 1)	Accept Order (Alternative 2)	Differential Effects (Alternative 2)
Revenues, per unit	$	$	$
Costs:
Variable manufacturing costs, per unit
Export tariff, per unit
Profit (loss), per unit	$	$	$

Answer 1

Ans:5

Ans:

	Continue (alt 1)	Discontinue (alt 2)	Differential effect on Income
Revenue	$233,700	0	($233,700)
Costs
Variable cost of good sold	95040	0	95040
	(108000*88%)
Variable operating expenses	111650	0	111650
	(145000*77%)
Fixed cost	46310	46310	0
	(108000*12%)+(145000*23%)
	($19300)	($46310)	($27010)
Yes it should be continued as there would be more loss if discontinued
If any doubt please comment

6.

Ans:

Differential Analysis
Reject Order (Alt. 1) or Accept Order (Alt. 2)
March 16
	Reject Order (Alternative 1)	Accept Order (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues, per unit	0	32	32
Costs:
Variable manufacturing costs, per unit	0	-24	-24
Export tariff, per unit	0	-4.8	-4.8
Income (Loss), per unit	0	3.20	3.20
The special order be accepted

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