Differential Analysis for a Discontinued Product A condensed income statement by product line for Healthy Beverage Inc. indicated the following for Fruit Cola for the past year: Sales $237,800 Cost of goods sold 110,000 Gross profit $127,800 Operating expenses 146,000 Loss from operations $(18,200) It is estimated that 13% of the cost of goods sold represents fixed factory overhead costs and that 20% of the operating expenses are fixed. Because Fruit 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 January 5 to determine whether Fruit Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". Use a minus sign to indicate a loss. Differential Analysis Continue Fruit Cola (Alt. 1) or Discontinue Fruit Cola (Alt. 2) January 5 Continue Fruit Cola (Alternative 1) Discontinue Fruit Cola (Alternative 2) Differential Effect on Income (Alternative 2) Revenues $ $ $ Costs: Variable cost of goods sold Variable operating expenses Fixed costs Income (Loss) $ $ $ b. Should Fruit Cola be retained?
Differential Analysis for a Discontinued Product A condensed income statement by product line for Healthy Beverage Inc. indicated the following for Fruit Cola for the past year: Sales $237,800 Cost of goods sold 110,000 Gross profit $127,800 Operating expenses 146,000 Loss from operations $(18,200) It is estimated that 13% of the cost of goods sold represents fixed factory overhead costs and that 20% of the operating expenses are fixed. Because Fruit 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 January 5 to determine whether Fruit Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". Use a minus sign to indicate a loss. Differential Analysis Continue Fruit Cola (Alt. 1) or Discontinue Fruit Cola (Alt. 2) January 5 Continue Fruit Cola (Alternative 1) Discontinue Fruit Cola (Alternative 2) Differential Effect on Income (Alternative 2) Revenues $ $ $ Costs: Variable cost of goods sold Variable operating expenses Fixed costs Income (Loss) $ $ $ b. Should Fruit Cola be retained?
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 Healthy Beverage Inc. indicated the following for Fruit Cola for the past year:
| Sales | $237,800 |
| Cost of goods sold | 110,000 |
| Gross profit | $127,800 |
| Operating expenses | 146,000 |
| Loss from operations | $(18,200) |
It is estimated that 13% of the cost of goods sold represents fixed
a. Prepare a differential analysis dated January 5 to determine whether Fruit Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". Use a minus sign to indicate a loss.
| Differential Analysis | |||
| Continue Fruit Cola (Alt. 1) or Discontinue Fruit Cola (Alt. 2) | |||
| January 5 | |||
| Continue Fruit Cola (Alternative 1) | Discontinue Fruit Cola (Alternative 2) | Differential Effect on Income (Alternative 2) | |
| Revenues | $ | $ | $ |
| Costs: | |||
| Variable cost of goods sold | |||
| Variable operating expenses | |||
| Fixed costs | |||
| Income (Loss) | $ | $ | $ |
b. Should Fruit Cola be retained?
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