#2

Differential Analysis for a Discontinued Product

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

Sales	$238,000
Cost of goods sold	(109,000)
Gross profit	$129,000
Operating expenses	(144,000)
Operating loss	$(15,000)

It is estimated that 13% of the cost of goods sold represents fixed factory overhead costs and that 18% 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). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.