Prepare a differential analysis dated January 21 to determine whether Star 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 for a Discontinued Product
A condensed income statement by product line for Celestial Beverage Inc. indicated the following for Star Cola for the past year:
| Sales | $390,000 |
| Cost of goods sold | 184,000 |
| Gross profit | $206,000 |
| Operating expenses | 255,000 |
| Loss from operations | $(49,000) |
It is estimated that 20% of the cost of goods sold represents fixed
a. Prepare a differential analysis dated January 21 to determine whether Star 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 Star Cola (Alt. 1) or Discontinue Star Cola (Alt. 2) | |||
| January 21 | |||
| Continue Star Cola (Alternative 1) |
Discontinue Star Cola (Alternative 2) |
Differential Effect on Income (Alternative 2) |
|
| Revenues | $fill in the blank 7dc92008f01901a_1 | $fill in the blank 7dc92008f01901a_2 | $fill in the blank 7dc92008f01901a_3 |
| Costs: | |||
| Variable cost of goods sold | fill in the blank 7dc92008f01901a_4 | fill in the blank 7dc92008f01901a_5 | fill in the blank 7dc92008f01901a_6 |
| Variable operating expenses | fill in the blank 7dc92008f01901a_7 | fill in the blank 7dc92008f01901a_8 | fill in the blank 7dc92008f01901a_9 |
| Fixed costs | fill in the blank 7dc92008f01901a_10 | fill in the blank 7dc92008f01901a_11 | fill in the blank 7dc92008f01901a_12 |
| Income (Loss) | $fill in the blank 7dc92008f01901a_13 | $fill in the blank 7dc92008f01901a_14 | $fill in the blank 7dc92008f01901a_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 8ce69e077f86044_3 if the product is discontinued.
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