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

Differential Analysis for a Discontinued Product

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

Sales $235,600
Cost of goods sold 111,000
Gross profit $124,600
Operating expenses 145,000
Loss from operations $(20,400)

It is estimated that 12% of the cost of goods sold represents fixed factory overhead costs and that 22% of the operating expenses are fixed. Because Fruit 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 January 5 to determine whether Fruit Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". Use a minus sign to indicate a loss.

Differential Analysis
Continue Fruit Cola (Alt. 1) or Discontinue Fruit Cola (Alt. 2)
January 5
Continue Fruit Cola (Alternative 1) Discontinue Fruit Cola (Alternative 2) Differential Effect on Income (Alternative 2)
Revenues $ $ $
Costs:
Variable cost of goods sold
Variable operating expenses
Fixed costs
Income (Loss) $ $ $

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Expert Solution

ekkarill92 answered 1 year ago
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