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

sales 290,000

Cost of goods sold 155,000

Gross profit 135,000

operating expense 207,000

loss from operations (72,000)

It is estimated that 12 % of the cost of goods sold represents fixed factory overhead costs and that 18% of the operating expenses are fixed. Since Star Cola is only one of many products, the fixed costs will not be materially affected if the product is discontinued.

Prepare a differential analysis, dated March 3, 2014, to determine whether Star Cola should be continued (Alternative 1) or discontinued (Alternative 2).

Should Star Cola be retained? Explain.