Question
Cotrone Beverages makes energy drinks in three flavors: Original, Strawberry, and Orange. The company is currently operating at 75 percent of capacity. Worried about the
Cotrone Beverages makes energy drinks in three flavors: Original, Strawberry, and Orange. The 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 Original Strawberry Orange Sales $ 32,900 $ 42,600 $ 50,900 Variable costs 23,030 38,340 40,720 Contribution margin $ 9,870 $ 4,260 $ 10,180 Fixed costs allocated to each product line 4,800 6,400 7,900 Operating profit (loss) $ 5,070 $ (2,140 ) $ 2,280 Required: a. Prepare a differential cost schedule.
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