Cotrone Beverages makes energy drinks in three flavors: Original, Strawberry, and Orange. The company is currently operating at 75 percent of capacity. Worried about the company's performance, the company president is considering dropping the Strawberry flavor. If Strawberry is dropped, the revenue associated with it would be lost and the related variable costs saved. In Addition, the company's total fixed costs would be reduced by 15 percent. Segmented income statements appear as follows: Product Original Strawberry Orange Sales $32,600 $43,600 $51,600 Variable costs 22,820 39,240 41,280 Contribution margin $ 9,700 $ 4,360 $10,320 Fixed costs allocated to each product line 4,300 6,200 6,900 Operating profit (loss) $ 5,480 $(1,840) $ 3,420 Required: a. Prepare a differential cost schedule. (Select option "increase" or "decrease", keeping Status Quo as the base. Select "none" if there is no effect.) Status Quo Alternative: Drop Strawberry Difference Revenue ? ? ? ? Less: Variable costs ? ? ? ? Contribution margin ? ? ? ? Less: Fixed costs ? ? ? ? Operating profit (loss) ? ? ? ? b. Should Cotrone drop the Strawberry product line? ____ Yes ____ No
Cotrone Beverages makes energy drinks in three flavors: Original, Strawberry, and Orange. The company is currently operating at 75 percent of capacity. Worried about the company's performance, the company president is considering dropping the Strawberry flavor. If Strawberry is dropped, the revenue associated with it would be lost and the related variable costs saved. In Addition, the company's total fixed costs would be reduced by 15 percent.
Segmented income statements appear as follows:
Product Original Strawberry Orange
Sales $32,600 $43,600 $51,600
Variable costs 22,820 39,240 41,280
Contribution margin $ 9,700 $ 4,360 $10,320
Fixed costs allocated to each product line 4,300 6,200 6,900
Operating
Required:
a. Prepare a differential cost schedule. (Select option "increase" or "decrease", keeping Status Quo as the base. Select "none" if there is no effect.)
Status Quo Alternative: Drop Strawberry Difference
Revenue ? ? ? ?
Less: Variable costs ? ? ? ?
Contribution margin ? ? ? ?
Less: Fixed costs ? ? ? ?
Operating profit (loss) ? ? ? ?
b. Should Cotrone drop the Strawberry product line?
____ Yes
____ No
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