A condensed income statement by product line for Lavonia Beverage Inc. indicated the following for Vim Cola for the past year: Sales Cost of goods sold Gross profit Operating expenses Operating loss It is estimated that 14% of the cost of goods sold represents fixed factory overhead costs and that 23% of the operating expenses are fixed. Because Vim 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 November 2 to determine whether Vim Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Continue (Alt. 1) or Discontinue (Alt. 2) Vim Cola November 2 Line Item Description $236,800 (108,000) $128,800 (142,000) $(13,200) Revenues Costs: Variable cost of goods sold Variable operating expenses Fixed costs Profit (loss) Continue Discontinue Differential Effects Vim Cola Vim Cola (Alternative 1) (Alternative 2) (Alternative 2) 236,800 ✔
A condensed income statement by product line for Lavonia Beverage Inc. indicated the following for Vim Cola for the past year: Sales Cost of goods sold Gross profit Operating expenses Operating loss It is estimated that 14% of the cost of goods sold represents fixed factory overhead costs and that 23% of the operating expenses are fixed. Because Vim 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 November 2 to determine whether Vim Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Continue (Alt. 1) or Discontinue (Alt. 2) Vim Cola November 2 Line Item Description $236,800 (108,000) $128,800 (142,000) $(13,200) Revenues Costs: Variable cost of goods sold Variable operating expenses Fixed costs Profit (loss) Continue Discontinue Differential Effects Vim Cola Vim Cola (Alternative 1) (Alternative 2) (Alternative 2) 236,800 ✔
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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Transcribed Image Text:Differential Analysis for a Discontinued Product
A condensed income statement by product line for Lavonia Beverage Inc. indicated the following for Vim Cola for the past
year:
Sales
Cost of goods sold
Gross profit
Operating expenses
Operating loss
It is estimated that 14% of the cost of goods sold represents fixed factory overhead costs and that 23% of the operating
expenses are fixed. Because Vim 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 November 2 to determine whether Vim Cola should be continued (Alternative 1)
or discontinued (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.
$236,800
(108,000)
$128,800
(142,000)
$(13,200)
Line Item Description
Revenues
Costs:
Differential Analysis
Continue (Alt. 1) or Discontinue (Alt. 2) Vim Cola
November 2
Profit (loss)
Variable cost of goods sold
Variable operating expenses
Fixed costs
Continue
Discontinue
Differential
Effects
(Alternative 1) (Alternative 2) (Alternative 2)
Vim Cola
Vim Cola
236,800
$
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