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	$232,500
Cost of goods sold	111,000
Gross profit	$121,500
Operating expenses	144,000
Loss from operations	$(22,500)

It is estimated that 13% of the cost of goods sold represents fixed factory overhead costs and that 20% 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)
March 3
	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 King Cola be retained?