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

Sales...................................................................................$ 15,000,000

Cost of goods sold.............................................................(10,800,000)

Gross profit.........................................................................$ 4,200,000

Operating expenses...........................................................(8,000,000)

Operating loss.....................................................................$ (3,800,000)

It is estimated that 30% of the cost of goods sold represents fixed factory overhead costs and that 25% 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).

b. Should Mango Cola be retained? Explain.