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A condensed income statement by product line for Warrick Beverage Inc. indicated the following for Mango Cola for the past year: It is estimated that
A condensed income statement by product line for Warrick Beverage Inc. indicated the following for Mango Cola for the past year:
It is estimated that 30% of the cost of goods sold represents fixed factory overhead costs and that 25% of the operating expenses are fixed. Because Mango Cola is only one of many products, the fixed costs will not be materially affected if the product is discontinued.
- Prepare a differential analysis dated February 29 to determine whether Mango Cola should be continued (Alternative 1) or discontinued (Alternative 2).
Answer
Check Figure: Differential loss, $(1,440,000)
- Should Mango Cola be retained? Explain.
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