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Differential Analysis Report for a Discontinued Product A condensed income statement by product line for British Beverage Inc. indicated the following for Royal Cola for
Differential Analysis Report for a Discontinued Product
A condensed income statement by product line for British Beverage Inc. indicated the following for Royal Cola for the past year:
Sales | $236,800 |
Cost of goods sold | (109,000) |
Gross profit | $127,800 |
Operating expenses | (142,000) |
Operating loss | $(14,200) |
It is estimated that 12% of the cost of goods sold represents fixed factory overhead costs and that 22% of the operating expenses are fixed. Since Royal Cola is only one of many products, the fixed costs will not be significantly affected if the product is discontinued.
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a. Prepare a differential analysis report for the proposed discontinuance of Royal Cola.
Differential revenue from annual sales of Royal Cola: | ||
Cost of goods soldGross profitNet profitOperating expensesRevenue from salesRevenue from sales | $Revenue from sales | |
Differential cost of annual sales of Royal Cola: | ||
Fixed cost of goods soldGross profitNet profitRevenue from salesVariable cost of goods soldVariable cost of goods sold Incorrect | $Variable cost of goods sold | |
Fixed operating expensesGross profitNet profitVariable operating expensesVariable overhead expensesVariable operating expenses | Variable operating expenses | Variable operating expenses |
Annual differential income from sales of Royal ColaAnnual differential loss from sales of Royal ColaGross profitNet profitVariable operating expensesAnnual differential income from sales of Royal Cola | $Annual differential income from sales of Royal Cola |
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