Differential Analysis for a Discontinued Product

A condensed income statement by product line for Crown Beverage Inc. indicated the following for Royal Cola for the past year:

Sales	$235,200
Cost of goods sold	109,000
Gross profit	$126,200
Operating expenses	143,000
Loss from operations	$(16,800)

It is estimated that 15% of the cost of goods sold represents fixed factory overhead costs and that 18% of the operating expenses are fixed. Since Royal 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 to Continue Royal Cola (Alternative 1) or Discontinue Royal Cola (Alternative 2). If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential Analysis Continue Royal Cola (Alt. 1) or Discontinue Royal Cola (Alt. 2) March 3

	Continue Royal Cola (Alternative 1)	Discontinue Royal Cola (Alternative 2)	Differential Effects (Alternative 2)
Revenues	$fill in the blank 258cd504dfa9f9e_1	$fill in the blank 258cd504dfa9f9e_2	$fill in the blank 258cd504dfa9f9e_3
Costs:
Variable cost of goods sold	fill in the blank 258cd504dfa9f9e_4	fill in the blank 258cd504dfa9f9e_5	fill in the blank 258cd504dfa9f9e_6
Variable operating expenses	fill in the blank 258cd504dfa9f9e_7	fill in the blank 258cd504dfa9f9e_8	fill in the blank 258cd504dfa9f9e_9
Fixed costs	fill in the blank 258cd504dfa9f9e_10	fill in the blank 258cd504dfa9f9e_11	fill in the blank 258cd504dfa9f9e_12
Profit (loss)	$fill in the blank 258cd504dfa9f9e_13	$fill in the blank 258cd504dfa9f9e_14	$fill in the blank 258cd504dfa9f9e_15

b. Should King Cola be retained? Explain.

YesNo

As indicated by the differential analysis in part (A), the income would

decreaseincrease

by $fill in the blank ca591a06c07ff8d_3 if the product is discontinued.