Answered: Sales $ 15,000,000 Cost of goods sold…

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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Question

A condensed income statement by product line for Warrick Reverage Inc.indicated the following for mango Cola for the past years

It is estimated that 30% of the cost of goods sold represents fixed factory overhead costs and that 25% of the opening expenses are fixed.because Mango Cola is only one of many products ,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)

b. Should Mango Cola be retained? Explain

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

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Discontinuing operations for a product or a service line

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