Cotrone Beverages makes energy drinks in three flavors: Original, Strawberry, and Orange. Company is currently operating at 75 percent of capacity. Worried about the company's performance, the company president is considering dropping the Strawberry flavor. If Strawberry is dropped, the revenue associated with it would be lost and the related variable costs saved. In addition, the company's total fixed costs would be reduced by 15 percent.

Segmented income statements appear as follows:

Product

OriginalStrawberryOrangeSales$32,500$43,500$50,900

Variable costs22,75039,15040,720

Contribution margin$9,750$4,350$10,180

Fixed costs allocated to each product line4,9006,5007,100

Operating profit (loss)$4,850$(2,150)$3,080

Required:

a.Prepare a differential cost schedule.

Status QuoAlternative: Drop StrawberryDifference (all lower under

the alternative)Revenue

Less: Variable costs Contribution margin

Less: Fixed costs

Operating profit (loss)

b.Should Cotrone drop the Strawberry product line?