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 $235,900 Cost of goods sold (111,000) Gross profit $124,900 Operating expenses (145,000) Operating loss $(20,100) < It is estimated that 16% of the cost of goods sold represents fixed factory overhead costs and that 19% 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 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 Line Item Description Vim Cola Vim Cola Effects (Alternative 1) (Alternative 2) (Alternative 2) 235,000 X $ 0 -235,000 X Revenues Costs: Variable cost of goods sold -93,240 0 93,240 Variable operating expenses -117,450 0 117,450 Fixed costs -45,310 -45,310 Profit (loss) -21,000 X -45,310 24,310 X Feedback Check My Work For continue and discontinue alternatives subtract the costs from the revenues. Use percentages to sepa variable from fixed costs. Determine the differential effect on income of the revenues, costs, and income by subtracting alternative 1 from alternative 2. b. Should Vim Cola be retained?