A13 fx Of the total COGS, 20% is fixed, Of the total Operating expenses, 30% is fixed. A B C D 1 Problem 1A: Decision to Close a Product line (15: 12 + 3) 2 3 Boost Infusion Inc. produces a number of sports drinks and supplements. One of its products - Vigorita 4 has been reporting a loss for a number of years and management is considering discontinuing the product. 5 The following information is gathered from the income statement prepared for Vigorita for 20Y2. 6 7 Sales 8 Costs of Goods Sold (COGS) $710,000 550,000 9 Gross Profit 10 Operating expenses 11 Loss from operation 12 $160,000 185,000 ($25,000) 13 Of the total COGS, 20% is fixed, Of the total Operating expenses, 30% is fixed. 14 The fixed costs charged to Vigorita are an allocation of the total fixed costs of the company and 15 therefore, cannot be eliminated even if the producted is discontinued. 16 17 Required: 18 i) Prepare a differential analysis using the table below to recommend if Vigorita should be retained (Alt.1) or discontinued (Alt. 2). 19 20 21 22 23 24 Revenues 25 Costs: 26 Variable cost of goods sold 27 Variable operating expenses 28 Fixed costs Differential Analysis Retain (Alt. 1) or Discontinue (Alt. 2) Vigorita Retain (Alt. 1) $ Discontinue (Alt. 2) Differential impact of Alt. 2 on income $ $ 29 Income (loss) 30 31 ii) Do you recommend Boost Infusion to discontinue the product -Vigorita? Explain your answer. 32 Answer: 33 34 35 Problem 1B: Decision to Make or Buy (14:12 + 2) 36 Assume that Boost Infusion Inc. received an offer from a foreign manufacturer to buy Vigorita at a cost of $55 per unit. 37 The current production costs for Boost Infusion Inc. to produce each unit of Vigorita includes: 38 Direct materials costs per unit 39 Direct labor costs per unit 40 Variable overhead costs 41 Fixed overhead costs 42 Total cost per unit 43 $24 $13 $7 $16 $60 E F 44 If Boost Infusion buys the Vigorita from the foreign manufacturer, the fixed costs cannot be avoided as they are allocated fixed costs. 45 46 Required: 47 i) Prepare a differential analysis using the table below to recommend if Boost Infusion Inc. should produce (Alt.1) or buy (Alt. 2) Vigorita. 48 49 50 51 52 Differential Analysis Make (Alt. 1) or Buy (Alt. 2) Vigorita Make (Alt. 1) Buy(Alt. 1) Differential impact of Alt. 2 on income $ $ $0 $0 $0 53 Sales price per unit 54 Unit costs: 55 Purchase price 56 Direct materials 57 Direct labor 58 Variable factory overhead 59 Fixed factory overhead 60 Income (loss) 61 62 "Note: Sales price per unit information is not available and hence, entered as $0. 63 ) Do you recommend Boost Infusion Inc. to buy the product from the foreign manufacturer? Explain your answer. 64 Answer: 65 DA1