Differential analysis for a discontinued product A condensed income statement by product line for Lavonia Beverage Inc. indicated the following for Vim Cola for the past year: Sales $232,900 Cost of goods sold (109,000) Gross profit Operating expenses Operating loss $123,900 (144,000) $(20,100) It is estimated that 16% of the cost of goods sold represents fixed factory overhead costs and that 21% of the operating expenses are fixed. Because Vim 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 November 2 to determine whether Vim Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Continue (Alt. 1) or Discontinue (Alt. 2) Vim Cola November 2 Continue Discontinue Line Item Description Vim Cola Vim Cola Differential Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues Costs: Variable cost of goods sold Variable operating expenses Fixed costs Profit (loss) b. Should Vim Cola be retained?

FINANCIAL ACCOUNTING
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Chapter1: Financial Statements And Business Decisions
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Differential analysis for a discontinued product
A condensed income statement by product line for Lavonia Beverage Inc. indicated the following for Vim Cola for the past year:
Sales
$232,900
Cost of goods sold
(109,000)
Gross profit
Operating expenses
Operating loss
$123,900
(144,000)
$(20,100)
It is estimated that 16% of the cost of goods sold represents fixed factory overhead costs and that 21% of the operating expenses are fixed. Because Vim 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 November 2 to determine whether Vim Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to
indicate a loss.
Differential Analysis
Continue (Alt. 1) or Discontinue (Alt. 2) Vim Cola
November 2
Continue
Discontinue
Line Item Description
Vim Cola
Vim Cola
Differential
Effects
(Alternative 1) (Alternative 2) (Alternative 2)
Revenues
Costs:
Variable cost of goods sold
Variable operating expenses
Fixed costs
Profit (loss)
b. Should Vim Cola be retained?
Transcribed Image Text:Differential analysis for a discontinued product A condensed income statement by product line for Lavonia Beverage Inc. indicated the following for Vim Cola for the past year: Sales $232,900 Cost of goods sold (109,000) Gross profit Operating expenses Operating loss $123,900 (144,000) $(20,100) It is estimated that 16% of the cost of goods sold represents fixed factory overhead costs and that 21% of the operating expenses are fixed. Because Vim 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 November 2 to determine whether Vim Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Continue (Alt. 1) or Discontinue (Alt. 2) Vim Cola November 2 Continue Discontinue Line Item Description Vim Cola Vim Cola Differential Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues Costs: Variable cost of goods sold Variable operating expenses Fixed costs Profit (loss) b. Should Vim Cola be retained?
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