1. A condensed income statement by product line for Crown Beverage Inc. indicated the following for Royal Cola for the past year:

   Sales	$232,600
   Cost of goods sold	110,000
   Gross profit	$122,600
   Operating expenses	143,000
   Loss from operations	$(20,400)

   It is estimated that 14% of the cost of goods sold represents fixed factory overhead costs and that 21% of the operating expenses are fixed. Since Royal 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 March 3, to determine whether Royal Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter zero "0". 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 Cola (Alternative 1)	Discontinue Royal Cola (Alternative 2)	Differential Effect on Income (Alternative 2)
   Revenues	$	$	$
   Costs:
   Variable cost of goods sold
   Variable operating expenses
   Fixed costs
   Income (Loss)	$	$	$

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   b. Should Star Cola be retained? Explain.

   • Yes
   • No

   As indicated by the differential analysis in part (A), the income would

   • decrease
   • increase
   by $ if the product is discontinued.