Differential Analysis for a Discontinued Product A condensed income statement by product line for Crown Beverage Inc. indicated the following for King Cola for the past year: Sales $236,900 Cost of goods sold 109,000 Gross profit $127,900 Operating expenses 142,000 Loss from operations $(14,100) It is estimated that 15% of the cost of goods sold represents fixed factory overhead costs and that 21% of the operating expenses are fixed. Since King 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 to Continue King Cola (Alternative 1) or Discontinue King Cola (Alternative 2). If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Continue King Cola (Alt. 1) or Discontinue King Cola (Alt. 2) March 3 Discontinue King Continue King Cola (Alternative 1) Cola (Alternative 2) Differential Effects (Alternative 2) Revenues Costs: Variable cost of goods sold Variable operating expenses Fixed costs Profit (loss) b. Should King Cola be retained? Explain. As indicated by the differential analysis in part (A), the income would by $ if the product is discontinued.
Differential Analysis for a Discontinued Product A condensed income statement by product line for Crown Beverage Inc. indicated the following for King Cola for the past year: Sales $236,900 Cost of goods sold 109,000 Gross profit $127,900 Operating expenses 142,000 Loss from operations $(14,100) It is estimated that 15% of the cost of goods sold represents fixed factory overhead costs and that 21% of the operating expenses are fixed. Since King 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 to Continue King Cola (Alternative 1) or Discontinue King Cola (Alternative 2). If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Continue King Cola (Alt. 1) or Discontinue King Cola (Alt. 2) March 3 Discontinue King Continue King Cola (Alternative 1) Cola (Alternative 2) Differential Effects (Alternative 2) Revenues Costs: Variable cost of goods sold Variable operating expenses Fixed costs Profit (loss) b. Should King Cola be retained? Explain. As indicated by the differential analysis in part (A), the income would by $ if the product is discontinued.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Differential Analysis for a Discontinued Product
A condensed income statement by product line for Crown Beverage Inc. indicated the following for King Cola for the past year:
Sales
$236,900
Cost of goods sold
109,000
Gross profit
$127,900
Operating expenses
142,000
Loss from operations
$(14,100)
It is estimated that 15% of the cost of goods sold represents fixed factory overhead costs and that 21% of the operating expenses are fixed. Since King 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 to Continue King Cola (Alternative 1) or Discontinue King Cola (Alternative 2). If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or
negative numbers use a minus sign.
Differential Analysis
Continue King Cola (Alt. 1) or Discontinue King Cola (Alt. 2)
March 3
Continue King
Discontinue King
Differential Effects
Cola (Alternative 1) Cola (Alternative 2)
(Alternative 2)
Revenues
Costs:
Variable cost of goods sold
Variable operating expenses
Fixed costs
Profit (loss)
b. Should King Cola be retained? Explain.
As indicated by the differential analysis in part (A), the income would
by $
if the product is discontinued.
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