Question
Differential Analysis for a Discontinued Product A condensed income statement by product line for Crown Beverage Inc. indicated the following for King Cola for the
Differential Analysis for a Discontinued Product
A condensed income statement by product line for Crown Beverage Inc. indicated the following for King Cola for the past year:
Sales | $234,300 |
Cost of goods sold | 110,000 |
Gross profit | $124,300 |
Operating expenses | 144,000 |
Loss from operations | $(19,700) |
It is estimated that 12% of the cost of goods sold represents fixed factory overhead costs and that 21% of the operating expenses are fixed. Since King Cola is only one of many products, the fixed costs will not be materially affected if the product is discontinued.
a. Prepare a differential analysis, dated March 3, to determine whether King Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter zero "0". Use a minus sign to indicate a loss.
Differential Analysis | |||
Continue King Cola (Alt. 1) or Discontinue King Cola (Alt. 2) | |||
January 21 | |||
Continue King Cola (Alternative 1) | Discontinue King Cola (Alternative 2) | Differential Effect on Income (Alternative 2) | |
Revenues | $ | $ | $ |
Costs: | |||
Variable cost of goods sold | |||
Variable operating expenses | |||
Fixed costs | |||
Income (Loss) | $ | $ | $ |
b. Should Star Cola be retained? Explain.
As indicated by the differential analysis in part (A), the income would by $ if the product is discontinued.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started