Differential Analysis for a Discontinued Product

A condensed income statement by product line for British Beverage Inc. indicated the following for King Cola for the past year: Sales $232,300 Cost of goods sold 109,000 Gross profit $123,300 Operating expenses 142,000 Loss from operations $(18,700) It is estimated that 16% of the cost of goods sold represents fixed factory overhead costs and that 23% 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 "O". Use a minus sign to indicate a loss. Differential Analysis Continue King Cola (Alt. 1) or Discontinue King Cola (Alt. 2) January 21 Differential Effect Continue King Discontinue King on Income Cola (Alternative 1) Cola (Alternative 2) (Alternative 2) Revenues Costs: Variable cost of goods sold Variable operating expenses Fixed costs Income (Loss) b. Should Star Cola be retained? Explain. Yes As indicated by the differential analysis in part (A), the income would decrease by $ if the product is discontinued