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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 $233,300 (112,000) Cost of goods sold Gross profit $121,300 Operating expenses (146,000) Operating loss $(24,700) It is estimated that 12% of the cost of goods sold represents fixed factory overhead costs and that 18% 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 Line Item Description Revenues Costs: Variable cost of goods sold Variable operating expenses Fixed costs Profit (loss) Feedback Check My Work Continue Discontinue Vim Cola Differential Effects Vim Cola (Alternative 1) (Alternative 2) (Alternative 2) 0 0000

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 $233,300 (112,000) Cost of goods sold Gross profit $121,300 Operating expenses (146,000) Operating loss $(24,700) It is estimated that 12% of the cost of goods sold represents fixed factory overhead costs and that 18% 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 Line Item Description Revenues Costs: Variable cost of goods sold Variable operating expenses Fixed costs Profit (loss) Feedback Check My Work Continue Discontinue Vim Cola Differential Effects Vim Cola (Alternative 1) (Alternative 2) (Alternative 2) 0 0000

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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: $233,300 (112,000) $121,300 Operating expenses (146,000) Operating loss $(24,700) It is estimated that 12% of the cost of goods sold represents fixed factory overhead costs and that 18% 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 Sales Cost of goods sold Gross profit Line Item Description Revenues Costs: Variable cost of goods sold Variable operating expenses Fixed costs Profit (loss) Feedback ►Check My Work Continue Discontinue Differential Vim Cola Vim Cola Effects (Alternative 1) (Alternative 2) (Alternative 2) b. Should Vim Cola be retained? Yes ✓
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: $233,300 (112,000) $121,300 Operating expenses (146,000) Operating loss $(24,700) It is estimated that 12% of the cost of goods sold represents fixed factory overhead costs and that 18% 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 Sales Cost of goods sold Gross profit Line Item Description Revenues Costs: Variable cost of goods sold Variable operating expenses Fixed costs Profit (loss) Feedback ►Check My Work Continue Discontinue Differential Vim Cola Vim Cola Effects (Alternative 1) (Alternative 2) (Alternative 2) b. Should Vim Cola be retained? Yes ✓
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