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 $ 33,200     $ 43,200     $ 50,900   Variable costs   23,240       38,880       40,720   Contribution margin $ 9,960     $ 4,320     $ 10,180   Fixed costs allocated to each product line   4,200       5,800       7,700   Operating profit (loss) $ 5,760     $ (1,480 )   $ 2,480     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.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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 $ 33,200     $ 43,200     $ 50,900  
Variable costs   23,240       38,880       40,720  
Contribution margin $ 9,960     $ 4,320     $ 10,180  
Fixed costs allocated to each product line   4,200       5,800       7,700  
Operating profit (loss) $ 5,760     $ (1,480 )   $ 2,480  
 


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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