A condensed income statement by product line for Healthy Beverage Inc. indicated the following for Fruit Cola for the past year: Sales $237,100 Cost of goods sold 112,000 Gross profit $125,100 Operating expenses 143,000 Loss from operations $(17,900) It is estimated that 12% of the cost of goods sold represents fixed factory overhead costs and that 20% of the operating expenses are fixed. Because Fruit 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 January 5 to determine whether Fruit Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". Use a minus sign to indicate a loss. Differential Analysis Continue Fruit Cola (Alt. 1) or Discontinue Fruit Cola (Alt. 2) January 5 Continue Fruit Cola (Alternative 1) Discontinue Fruit Cola (Alternative 2) Differential Effect on Income (Alternative 2) Revenues $fill in the blank fd3d0af1a05d060_1 $fill in the blank fd3d0af1a05d060_2 $fill in the blank fd3d0af1a05d060_3 Costs: Variable cost of goods sold fill in the blank fd3d0af1a05d060_4 fill in the blank fd3d0af1a05d060_5 fill in the blank fd3d0af1a05d060_6 Variable operating expenses fill in the blank fd3d0af1a05d060_7 fill in the blank fd3d0af1a05d060_8 fill in the blank fd3d0af1a05d060_9 Fixed costs fill in the blank fd3d0af1a05d060_10 fill in the blank fd3d0af1a05d060_11 fill in the blank fd3d0af1a05d060_12 Income (Loss) $fill in the blank fd3d0af1a05d060_13 $fill in the blank fd3d0af1a05d060_14 $fill in the blank fd3d0af1a05d060_15 b. Should Fruit Cola be retained?

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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Differential Analysis for a Discontinued Product

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

Sales	$237,100
Cost of goods sold	112,000
Gross profit	$125,100
Operating expenses	143,000
Loss from operations	$(17,900)

It is estimated that 12% of the cost of goods sold represents fixed factory overhead costs and that 20% of the operating expenses are fixed. Because Fruit 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 January 5 to determine whether Fruit Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". Use a minus sign to indicate a loss.

Differential Analysis
Continue Fruit Cola (Alt. 1) or Discontinue Fruit Cola (Alt. 2)
January 5
	Continue Fruit Cola (Alternative 1)	Discontinue Fruit Cola (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues	$fill in the blank fd3d0af1a05d060_1	$fill in the blank fd3d0af1a05d060_2	$fill in the blank fd3d0af1a05d060_3
Costs:
Variable cost of goods sold	fill in the blank fd3d0af1a05d060_4	fill in the blank fd3d0af1a05d060_5	fill in the blank fd3d0af1a05d060_6
Variable operating expenses	fill in the blank fd3d0af1a05d060_7	fill in the blank fd3d0af1a05d060_8	fill in the blank fd3d0af1a05d060_9
Fixed costs	fill in the blank fd3d0af1a05d060_10	fill in the blank fd3d0af1a05d060_11	fill in the blank fd3d0af1a05d060_12
Income (Loss)	$fill in the blank fd3d0af1a05d060_13	$fill in the blank fd3d0af1a05d060_14	$fill in the blank fd3d0af1a05d060_15

b. Should Fruit Cola be retained?

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