Differential Analysis for a Discontinued Product A condensed income statement by product line for British Beverage Inc. indicated the following for Royal Cola for the past year: Sales $233,800 Cost of goods sold Gross profit 110,000 $123,800 Operating expenses 143,000 Loss from operations $(19,200) t is estimated that 12% of the cost of goods sold represents fixed factory overhead costs and that 20% of the operating expenses are fixed. Since Royal 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 March 3, to determine whether Royal Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter zero "0". Use a minus sign to indicate a loss. Differential Analysis Continue Royal Cola (Alt. 1) or Discontinue Royal Cola (Alt. 2) January 21 Continue Royal Cola (Alternative 1) Cola (Alternative 2) Discontinue Roval Differential Effect on Income (Alternative 2) Revenues 233,800 V Costs: Variable cost of goods sold Variable operating expenses Fixed costs 19,200 x Income (Loss) Feedback Chesk My Werk b. Should Star Cola be retained? Explain. Yes V As indicated by the differential analysis in part (A), the income would decrease V by s if the product is discontinued.
Differential Analysis for a Discontinued Product A condensed income statement by product line for British Beverage Inc. indicated the following for Royal Cola for the past year: Sales $233,800 Cost of goods sold Gross profit 110,000 $123,800 Operating expenses 143,000 Loss from operations $(19,200) t is estimated that 12% of the cost of goods sold represents fixed factory overhead costs and that 20% of the operating expenses are fixed. Since Royal 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 March 3, to determine whether Royal Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter zero "0". Use a minus sign to indicate a loss. Differential Analysis Continue Royal Cola (Alt. 1) or Discontinue Royal Cola (Alt. 2) January 21 Continue Royal Cola (Alternative 1) Cola (Alternative 2) Discontinue Roval Differential Effect on Income (Alternative 2) Revenues 233,800 V Costs: Variable cost of goods sold Variable operating expenses Fixed costs 19,200 x Income (Loss) Feedback Chesk My Werk b. Should Star Cola be retained? Explain. Yes V As indicated by the differential analysis in part (A), the income would decrease V by s if the product is discontinued.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Differential Analysis for a Discontinued Product
A condensed income statement by product line for British Beverage Inc. indicated the following for Royal Cola for the past year:
Sales
$233,800
Cost of goods sold
110,000
Gross profit
$123,800
Operating expenses
143,000
Loss from operations
$(19,200)
It is estimated that 12% of the cost of goods sold represents fixed factory overhead costs and that 20% of the operating expenses are fixed. Since Royal 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 March 3, to determine whether Royal Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter zero "0". Use a minus sign to indicate a loss.
Differential Analysis
Continue Royal Cola (Alt. 1) or Discontinue Royal Cola (Alt. 2)
January 21
Differential Effect
Continue Royal
Discontinue Royal
on Income
(Alternative 2)
Cola (Alternative 1) Cola (Alternative 2)
Revenues
233,800
Costs:
Variable cost of goods sold
Variable operating expenses
Fixed costs
19,200 x
Income (Loss)
Feedback
Check My Work
b. Should Star Cola be retained? Explain.
Yes
As indicated by the differential analysis in part (A), the income would decrease
-v by $
if the product is discontinued.
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