A condensed income statement by product line for British Beverage Inc. indicated the following for King Cola for the past year: Sales $235,700 Cost of goods sold 112,000 Gross profit $123,700 Operating expenses 146,000 Loss from operations $(22,300) It is estimated that 14% of the cost of goods sold represents fixed factory overhead costs and that 19% of the operating expenses are fixed. Since King 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 March 3, to determine whether King Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter zero "0". Use a minus sign to indicate a loss. Differential Analysis Continue King Cola (Alt. 1) or Discontinue King Cola (Alt. 2) January 21 Continue King Cola (Alternative 1) Discontinue King Cola (Alternative 2) Differential Effect on Income (Alternative 2) Revenues $ $ $ Costs: Variable cost of goods sold Variable operating expenses Fixed costs Income (Loss) $ $ $ b. Should Star Cola be retained? Explain. As indicated by the differential analysis in part (A), the income would by $ if the product is discontinued.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Differential Analysis for a Discontinued Product
A condensed income statement by product line for British Beverage Inc. indicated the following for King Cola for the past year:
| Sales | $235,700 |
| Cost of goods sold | 112,000 |
| Gross profit | $123,700 |
| Operating expenses | 146,000 |
| Loss from operations | $(22,300) |
It is estimated that 14% of the cost of goods sold represents fixed
a. Prepare a differential analysis, dated March 3, to determine whether King Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter zero "0". Use a minus sign to indicate a loss.
| Differential Analysis | |||
| Continue King Cola (Alt. 1) or Discontinue King Cola (Alt. 2) | |||
| January 21 | |||
| Continue King Cola (Alternative 1) |
Discontinue King Cola (Alternative 2) |
Differential Effect on Income (Alternative 2) |
|
| Revenues | $ | $ | $ |
| Costs: | |||
| Variable cost of goods sold | |||
| Variable operating expenses | |||
| Fixed costs | |||
| Income (Loss) | $ | $ | $ |
b. Should Star Cola be retained? Explain.
As indicated by the differential analysis in part (A), the income would by $ if the product is discontinued.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
