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 20 percent. Segmented income statements appear as follows. Product Original Strawberry Orange Sales $ 65,200 $ 85,600 $ 102,400 Variable costs 44,000 77,200 80,200 Contribution margin $ 21,200 $ 8,400 $ 22,200 Fixed costs allocated to each product line 9,400 12,000 14,200 Operating profit (loss) $ 11,800 $ (3,600 ) $ 8,000 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.)
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 20 percent. Segmented income statements appear as follows. Product Original Strawberry Orange Sales $ 65,200 $ 85,600 $ 102,400 Variable costs 44,000 77,200 80,200 Contribution margin $ 21,200 $ 8,400 $ 22,200 Fixed costs allocated to each product line 9,400 12,000 14,200 Operating profit (loss) $ 11,800 $ (3,600 ) $ 8,000 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.)
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 20 percent.
Segmented income statements appear as follows.
| Product | Original | Strawberry | Orange | ||||||||
| Sales | $ | 65,200 | $ | 85,600 | $ | 102,400 | |||||
| Variable costs | 44,000 | 77,200 | 80,200 | ||||||||
| Contribution margin | $ | 21,200 | $ | 8,400 | $ | 22,200 | |||||
| Fixed costs allocated to each product line | 9,400 | 12,000 | 14,200 | ||||||||
| Operating |
$ | 11,800 | $ | (3,600 | ) | $ | 8,000 | ||||
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.)
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