Differential analysis for a discontinued product OBJ. 1 A condensed income statement by product line for Celestial Beverage Inc. indicated the following for Star Cola for the past year:

Sales $390,000 Cost of goods sold 184,000 Gross profit $206,000 Operating expenses 255,000 Loss from operations $(49,000)
It is estimated that 20% of the cost of goods sold represents fixed factory overhead costs and that 30% of the operating expenses are fixed. Because Star 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 21 to determine whether Star Cola should be continued (Alternative 1) or discontinued (Alternative 2).

b. Should Star Cola be retained? Explain.