Question
A condensed income statement by product line for Lavonia Beverage Inc. indicated the following for Vim Cola for the past year: Line Item Description Amount
A condensed income statement by product line for Lavonia Beverage Inc. indicated the following for Vim Cola for the past year:
Line Item Description | Amount |
---|---|
Sales | $232,100 |
Cost of goods sold | (112,000) |
Gross profit | $120,100 |
Operating expenses | (146,000) |
Operating loss | $(25,900) |
It is estimated that 16% of the cost of goods sold represents fixed factory overhead costs and that 19% of the operating expenses are fixed. Because Vim Cola is only one of many products, the fixed costs will not be materially affected if the product is discontinued.
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a. Prepare a differential analysis dated November 2 to determine whether Vim 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.
Line Item Description | Continue Vim Cola (Alternative 1) | Discontinue Vim Cola (Alternative 2) | Differential Effects (Alternative 2) |
---|---|---|---|
Revenues | $Revenues | $Revenues | $Revenues |
Costs: | |||
Variable cost of goods sold | Variable cost of goods sold | Variable cost of goods sold | Variable cost of goods sold |
Variable operating expenses | Variable operating expenses | Variable operating expenses | Variable operating expenses |
Fixed costs | Fixed costs | Fixed costs | Fixed costs |
Profit (loss) | $Profit (loss) | $Profit (loss) | $Profit (loss) |
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