Differential Analysis for a Discontinued Product A condensed income statement by product line for Warrick Beverage Inc. indicated the following for Mango Cola for the past year: Sales $15,000,000 Cost of goods sold (10,800,000) Gross profit $4,200,000 Operating expenses (8,000,000) Operating loss $(3,800,000) It is estimated that 30% of the cost of goods sold represents fixed factory overhead costs and that 25% of the operating expenses are fixed. Because Mango 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 February 29 to determine whether Mango 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) Mango Cola February 29 Continue Mango Cola (Alternative 1) Discontinue Mango Cola (Alternative 2) Differential Effects (Alternative 2) Revenues $fill in the blank fe885d04afa1043_1 $fill in the blank fe885d04afa1043_2 $fill in the blank fe885d04afa1043_3 Costs: Variable cost of goods sold fill in the blank fe885d04afa1043_4 fill in the blank fe885d04afa1043_5 fill in the blank fe885d04afa1043_6 Variable operating expenses fill in the blank fe885d04afa1043_7 fill in the blank fe885d04afa1043_8 fill in the blank fe885d04afa1043_9 Fixed costs fill in the blank fe885d04afa1043_10 fill in the blank fe885d04afa1043_11 fill in the blank fe885d04afa1043_12 Profit (Loss) $fill in the blank fe885d04afa1043_13 $fill in the blank fe885d04afa1043_14 $fill in the blank fe885d04afa1043_15 b. Should Mango Cola be retained?

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 Warrick Beverage Inc. indicated the following for Mango Cola for the past year:

Sales	$15,000,000
Cost of goods sold	(10,800,000)
Gross profit	$4,200,000
Operating expenses	(8,000,000)
Operating loss	$(3,800,000)

It is estimated that 30% of the cost of goods sold represents fixed factory overhead costs and that 25% of the operating expenses are fixed. Because Mango 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 February 29 to determine whether Mango 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) Mango Cola
February 29
	Continue Mango Cola (Alternative 1)	Discontinue Mango Cola (Alternative 2)	Differential Effects (Alternative 2)
Revenues	$fill in the blank fe885d04afa1043_1	$fill in the blank fe885d04afa1043_2	$fill in the blank fe885d04afa1043_3
Costs:
Variable cost of goods sold	fill in the blank fe885d04afa1043_4	fill in the blank fe885d04afa1043_5	fill in the blank fe885d04afa1043_6
Variable operating expenses	fill in the blank fe885d04afa1043_7	fill in the blank fe885d04afa1043_8	fill in the blank fe885d04afa1043_9
Fixed costs	fill in the blank fe885d04afa1043_10	fill in the blank fe885d04afa1043_11	fill in the blank fe885d04afa1043_12
Profit (Loss)	$fill in the blank fe885d04afa1043_13	$fill in the blank fe885d04afa1043_14	$fill in the blank fe885d04afa1043_15

b. Should Mango Cola be retained?

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