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 $234,800 Cost of goods sold 111,000 Gross profit $123,800 Operating expenses 142,000 Loss from operations $(18,200) It is estimated that 14% of the cost of goods sold represents fixed factory overhead costs and that 22% 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) Discontinue Royal Cola (Alternative 2) Differential Effect on Income (Alternative 2) Revenues $fill in the blank a420c40c2025ff3_1 $fill in the blank a420c40c2025ff3_2 $fill in the blank a420c40c2025ff3_3 Costs: Variable cost of goods sold fill in the blank a420c40c2025ff3_4 fill in the blank a420c40c2025ff3_5 fill in the blank a420c40c2025ff3_6 Variable operating expenses fill in the blank a420c40c2025ff3_7 fill in the blank a420c40c2025ff3_8 fill in the blank a420c40c2025ff3_9 Fixed costs fill in the blank a420c40c2025ff3_10 fill in the blank a420c40c2025ff3_11 fill in the blank a420c40c2025ff3_12 Income (Loss) $fill in the blank a420c40c2025ff3_13 $fill in the blank a420c40c2025ff3_14 $fill in the blank a420c40c2025ff3_15 b. Should Star Cola be retained? Explain. As indicated by the differential analysis in part (A), the income would by $fill in the blank c86ac5fae00cfdc_3 if the product is discontinued.

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 British Beverage Inc. indicated the following for Royal Cola for the past year:

Sales	$234,800
Cost of goods sold	111,000
Gross profit	$123,800
Operating expenses	142,000
Loss from operations	$(18,200)

It is estimated that 14% of the cost of goods sold represents fixed factory overhead costs and that 22% 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)	Discontinue Royal Cola (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues	$fill in the blank a420c40c2025ff3_1	$fill in the blank a420c40c2025ff3_2	$fill in the blank a420c40c2025ff3_3
Costs:
Variable cost of goods sold	fill in the blank a420c40c2025ff3_4	fill in the blank a420c40c2025ff3_5	fill in the blank a420c40c2025ff3_6
Variable operating expenses	fill in the blank a420c40c2025ff3_7	fill in the blank a420c40c2025ff3_8	fill in the blank a420c40c2025ff3_9
Fixed costs	fill in the blank a420c40c2025ff3_10	fill in the blank a420c40c2025ff3_11	fill in the blank a420c40c2025ff3_12
Income (Loss)	$fill in the blank a420c40c2025ff3_13	$fill in the blank a420c40c2025ff3_14	$fill in the blank a420c40c2025ff3_15

b. Should Star Cola be retained? Explain.

As indicated by the differential analysis in part (A), the income would by $fill in the blank c86ac5fae00cfdc_3 if the product is discontinued.

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