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

It is estimated that 25% of the cost of goods sold represents fixed factory overhead costs and that 10% of the operating expenses are fixed. Because Vim 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 November 2 to determine whether Vim Cola should be continued (Alternative 1) or discontinued (Alternative 2).
b. Should Vim Cola be retained? Explain.

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Sales Cost of goods sold Gross profit Operating expenses Operating loss $ 12,500,000 (10,000,000) $ 2,500,000 (3,500,000) $ (1,000,000)