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 $ 33,300 $ 42,300 $ 51,500 Variable costs 23,310 38,070 41,200 Contribution margin $ 9,990 $ 4,230 $ 10,300 Fixed costs allocated to each product line 5,200 6,300 7,500 Operating profit (loss) $ 4,790 $ (2,070 ) $ 2,800 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.) 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 $ 33,300 $ 42,300 $ 51,500 Variable costs 23,310 38,070 41,200 Contribution margin $ 9,990 $ 4,230 $ 10,300 Fixed costs allocated to each product line 5,200 6,300 7,500 Operating profit (loss) $ 4,790 $ (2,070 ) $ 2,800 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.) b. Should Cotrone drop the Strawberry product line? Yes No
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 | $ | 33,300 | $ | 42,300 | $ | 51,500 | |||||
| Variable costs | 23,310 | 38,070 | 41,200 | ||||||||
| Contribution margin | $ | 9,990 | $ | 4,230 | $ | 10,300 | |||||
| Fixed costs allocated to each product line | 5,200 | 6,300 | 7,500 | ||||||||
| Operating |
$ | 4,790 | $ | (2,070 | ) | $ | 2,800 | ||||
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.)
b. Should Cotrone drop the Strawberry product line?
-
Yes
-
No
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