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

Sales	$382,700
Cost of goods sold	185,500
Gross profit	$197,200
Operating expenses	254,600
Loss from operations	$ (57,400)

It is estimated that 18% of the cost of goods sold represents fixed factory overhead costs and that 34% 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.

Required:

A.

Prepare a differential analysis, dated January 21 to determine whether Star Cola should be continued (Alternative 1) or discontinued (Alternative 2). Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.

B.

Should Star Cola be retained? Explain.

Differential Analysis

Continue Star Cola (Alternative 1) or Discontinue Star Cola (Alternative 2)

January 21

1		Continue Star Cola	Discontinue Star Cola	Differential Effect on Income
2		(Alternative 1)	(Alternative 2)	(Alternative 2)
3	Revenue
4	Costs:
5	Variable Costs of Goods sold
6	Variable Operating costs
7	Fixed Costs
8	Income (loss)