Differential Analysis for a Discontinued Product A condensed income statement by product line for Lavonia Beverage Inc. indicated the following for Vim Cola for the past year: Sales Cost of goods sold $12,500,000 (10,000,000) Gross profit $2,500,000 Operating expenses Operating loss (3,500,000) $(1,000,000) It is estimated that 25% of the cost of goods sold represents fixed factory overhead costs and that 10% of the operating expenses are fixed. Because Vim 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 November 2 to determine whether Vim Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0", If required, use a minus sign to indicate a loss. Differential Analysis Continue (Alt. 1) or Discontinue (Alt. 2) Vim Cola November 2 Continue Line Item Description Vim Cola Discontinue Vim Cola Differential Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues Costs: Variable cost of goods sold Variable operating expenses Fixed costs Gross profit Operating expenses Operating loss $2,500,000 (3,500,000) $(1,000,000) It is estimated that 25% of the cost of goods sold represents fixed factory overhead costs and that 10% of the operating expenses are fixed. Because Vim 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 November 2 to determine whether Vim Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to Indicate a loss. Differential Analysis Continue (Alt. 1) or Discontinue (Alt. 2) Vim Cola November 2 Continue Discontinue Differential Effects Vim Cola (Alternative 1) (Alternative 2) (Alternative 2) Line Item Description Vim Cola Revenues Costs: Variable cost of goods sold Variable operating expenses Fixed costs Profit (loss) b. Should Vim Cola be retained? 1400000 No