A condensed income statement by product line for Crown Beverage Inc. indicated the following for King Cola for the past year: Sales $232,500 Cost of goods sold 108,000 Gross profit $124,500 Operating expenses 146,000 Loss from operations $(21,500) t 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 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 to Continue King Cola (Alternative 1) or Discontinue King Cola (Alternative 2). If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Continue King Cola (Alt. 1) or Discontinue King Cola (Alt. 2) March 3 Continue King Discontinue King Differential Effects Cola (Alternative 1) Cola (Alternative 2) (Alternative 2) Revenues Costs: Variable cost of goods sold Variable operating expenses Fixed costs Profit (loss) b. Should King Cola be retained? Explain. As indicated by the differential analysis in part (A), the income would if the product is discontinued.

A condensed income statement by product line for Crown Beverage Inc. indicated the following for King Cola for the past year: Sales $232,500 Cost of goods sold 108,000 Gross profit $124,500 Operating expenses 146,000 Loss from operations $(21,500) t 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 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 to Continue King Cola (Alternative 1) or Discontinue King Cola (Alternative 2). If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Continue King Cola (Alt. 1) or Discontinue King Cola (Alt. 2) March 3 Continue King Discontinue King Differential Effects Cola (Alternative 1) Cola (Alternative 2) (Alternative 2) Revenues Costs: Variable cost of goods sold Variable operating expenses Fixed costs Profit (loss) b. Should King Cola be retained? Explain. As indicated by the differential analysis in part (A), the income would if the product is discontinued.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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