1. Differential Analysis for a Discontinued Product

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

   Sales	$233,800
   Cost of goods sold	109,000
   Gross profit	$124,800
   Operating expenses	146,000
   Loss from operations	$(21,200)

   It is estimated that 13% of the cost of goods sold represents fixed factory overhead costs and that 23% of the operating expenses are fixed. Because Fruit 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 January 5 to determine whether Fruit Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". Use a minus sign to indicate a loss.

   Differential Analysis
   Continue Fruit Cola (Alt. 1) or Discontinue Fruit Cola (Alt. 2)
   January 5
   	Continue Fruit Cola (Alternative 1)	Discontinue Fruit 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 Fruit Cola be retained?