Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A condensed income statement by product line for Crown Beverage Inc. indicated the following for King Cola for the past year: Sales $235,000 Cost of

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

Sales $235,000
Cost of goods sold 112,000
Gross profit $123,000
Operating expenses 146,000
Loss from operations $(23,000)

It is estimated that 14% of the cost of goods sold represents fixed factory overhead costs and that 20% of the operating expenses are fixed. Since King 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 King 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 King Cola (Alt. 1) or Discontinue King Cola (Alt. 2)
January 21
Continue King Cola (Alternative 1) Discontinue King Cola (Alternative 2) Differential Effect on Income (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.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Environmental Audits

Authors: Cliff VanGuilder

1st Edition

1938549600, 978-1938549601

More Books

Students also viewed these Accounting questions