Prepare a differential cost schedule b. Should Cotrone drop the Strawberry product line?
Prepare a differential cost schedule b. Should Cotrone drop the Strawberry product line?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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Cost accounting:
Cotrone Beverages makes energy drinks in three flavors: Original, strawberry, and orange. Company is currently operating at 75 percent of capacity. Worried about the company's performance, the company president is considering dropping the Strawberry flavor. If Strawberry is dropped, the revenue associated with it would be lost and the related variable costs saved. In addition, the company's total fixed costs would be reduced by 15 percent.
Segmented income statements appear as follows:
Sales: Original, Strawberry, Orange, $32,200,42400,51300
Variable Costs: Original, Strawberry, Orange : $22540, 38160, 41040
Contribution margin: Original, Strawberry, Orange; $9660, 4240, 10260.
Fixed costs allocated to each product line, Original, Strawberry, Orange:$4200, 5800, 7600.
Operating profit (loss ) Original, Strawberry, Orange: $5460, (1560), 2660.
a. Prepare a differential cost schedule
b. Should Cotrone drop the Strawberry product line?
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