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A condensed income statement by product line for Healthy Beverage Inc. indicated the following for Fruit Cola for the past year: Sales $393,100 Cost of
A condensed income statement by product line for Healthy Beverage Inc. indicated the following for Fruit Cola for the past year:
Sales | $393,100 |
Cost of goods sold | 189,900 |
Gross profit | $203,200 |
Operating expenses | 254,400 |
Loss from operations | $ (51,200) |
It is estimated that 20% of the cost of goods sold represents fixed factory overhead costs and that 28% of the operating expenses are fixed. Because Fruit 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 5 to determine whether Fruit 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 Fruit Cola be retained? Explain.
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