A condensed Income statement by product line for British Beverage Inc. indicated the following for Royal Cola for the past year: Sales $235,600 Cost of goods sold 110,000 Gross profit $125,600 Operating expenses 143,000 Loss from operations $(17,400) It is estimated that 13% of the cost of goods sold represents fixed factory overhead costs and that 20% of the operating expenses are fixed. Since Royal Cola is only one of many products, the fixed costs will not be materially affected of the product is discontinued a. Prepare a differential analysis, dated March 3, to determine whether Royal Cola should be continued (Alternative 1) or discontinued (Alternative 2). U an amount is zero, enter zero "O", Use a minus sign to indicate a loss. Differential Analysis Continue Royal Cola (Alt. 1) or Discontinue Royal Cola (Alt. 2) January 21 Continue Royal Discontinue Royal Cola (Alternative 1) Cola (Alternative 2) (Alternative 2) Revenues Costs: Variable cost of goods sold Variable operating expenses Fixed costs Differential Effect on Income Income (Loss) January 21 Differential Effect on Income (Alternative 2) Continue Royal Discontinue Royal Cola (Alternative 1) Cola (Alternative 2) Revenues Costs: Variable cost of goods sold Variable operating expenses Fixed costs Income (Loss) b. Should Star Cola be retained explain As indicated by the differential analysis in part (A), the income would by if the product is discontinued Matchless Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $60 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 45% of direct labor cost. The fully absorbed unit costs to produce comparable carrying cases are expected to be as follows: Direct materials $25 Direct labor 21 Factory overhead (45% of direct labor) 9.45 Total cost per unit $55.45 IF Matchless Computer Company manufactures the carrying cases, Pored factory overhead costs will not increase and variable factory overhead costs associated with the cases are expected to be 14% of the direct labor costs. a. Prepare a differential analysis dated February 24 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. If required, round your answers to two decimal places. If an amount is zero, enter "O". For those bones in which you must enter subtracted or negative numbers use a minus sign Differential Analysis Make Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2) February 24 Make Carrying Buy Carrying Differential Effect Case (Alternative 1) Case (Alternative 2) on Income (Alternative 2) Sales Price Costs: Purchase price Direct materials per unit Direct labor per unit Variable factory overhead per unit Fixed factory overhead per unit Income (LOS)
