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 Gross profit $234,200 (112,000) $122,200 (143,000) $(20,800) It is estimated that 16% of the cost of goods sold represents fixed factory overhead costs and that 18% 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. Operating expenses Operating loss 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. Line Item Description Revenues Costs: Differential Analysis Continue (Alt. 1) or Discontinue (Alt. 2) Vim Cola November 2 Variable cost of goods sold Variable operating expenses Fixed costs Profit (loss) b. Should Vim Cola be retained? Continue Discontinue Differential Vim Cola Vim Cola Effects (Alternative 1) (Alternative 2) (Alternative 2)

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: It is estimated that 16% of the cost of goods sold represents fixed factory overhead costs and that 18% 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. b. Should Vim Cola be retained