=+E12-2 Differential analysis report for a discontinued product Ob] 1

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a. Differential cost of annual sales,

$299,400 A condensed income statement by product line for Canadian Beverage Inc. indicated the follow¬

ing for Lemon Mist for the past year:

Sales $362,000 Cost of goods sold 185,000 Gross profit $177,000 Operating expenses 215,000 Loss from operations $(38,000)

It is estimated that 23% ofthe cost of goods sold represents fixed factory overhead costs and that 27% ofthe operating expenses are fixed. Since Lemon Mist is only one of many prod¬

ucts, the fixed costs will not be materially affected ifthe product is discontinued.