Differential Analysis for a Discontinued Product

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

Sales	$232,400
Cost of goods sold	(112,000)
Gross profit	$120,400
Operating expenses	(143,000)
Operating loss	$(22,600)

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 Mango Cola is only one of many products, the fixed costs will not be materially affected if the product is discontinued.

Question Content Area

a. Prepare a differential analysis dated February 29 to determine whether Mango 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.

	Continue Mango Cola (Alternative 1)	Discontinue Mango Cola (Alternative 2)	Differential Effects (Alternative 2)
Revenues	$fill in the blank e2657f013fcc05d_1	$fill in the blank e2657f013fcc05d_2	$fill in the blank e2657f013fcc05d_3
Costs:
Variable cost of goods sold	fill in the blank e2657f013fcc05d_4	fill in the blank e2657f013fcc05d_5	fill in the blank e2657f013fcc05d_6
Variable operating expenses	fill in the blank e2657f013fcc05d_7	fill in the blank e2657f013fcc05d_8	fill in the blank e2657f013fcc05d_9
Fixed costs	fill in the blank e2657f013fcc05d_10	fill in the blank e2657f013fcc05d_11	fill in the blank e2657f013fcc05d_12
Profit (Loss)	$fill in the blank e2657f013fcc05d_13	$fill in the blank e2657f013fcc05d_14	$fill in the blank e2657f013fcc05d_15

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b. Should Mango Cola be retained?

YesNo