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 $236,900 (109,000) Gross profit Operating expenses $127,900 Operating loss (146,000) $(18,100) It is estimated that 15% of the cost of goods sold represents fixed factory overhead costs and that 22% 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 Differential Effects Line Item Description Vim Cola Discontinue Vim Cola (Alternative 1) (Alternative 2) (Alternative 2) Revenues 236,900 $ 0 236,900 Costs: Variable cost of goods sold Variable operating expenses -146,000 X Fixed costs -18,100 Profit (loss) Previous Next