Segmented income statements appear as follows: Product Original Strawberry Orange Sales $ 32,900 $ 43,400 $ 51,500 Variable costs 23,030 39,060 41,200 Contribution margin $ 9,870 $ 4,340 $ 10,300 Fixed costs allocated to each product line 5,400 6,300 6,900 Operating profit (loss) $ 4,470 $ (1,960 ) $ 3,400
Segmented income statements appear as follows: Product Original Strawberry Orange Sales $ 32,900 $ 43,400 $ 51,500 Variable costs 23,030 39,060 41,200 Contribution margin $ 9,870 $ 4,340 $ 10,300 Fixed costs allocated to each product line 5,400 6,300 6,900 Operating profit (loss) $ 4,470 $ (1,960 ) $ 3,400
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Cotrone Beverages makes energy drinks in three flavors: Original, Strawberry, and Orange. The 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:
| Product | Original | Strawberry | Orange | ||||||||
| Sales | $ | 32,900 | $ | 43,400 | $ | 51,500 | |||||
| Variable costs | 23,030 | 39,060 | 41,200 | ||||||||
| Contribution margin | $ | 9,870 | $ | 4,340 | $ | 10,300 | |||||
| Fixed costs allocated to each product line | 5,400 | 6,300 | 6,900 | ||||||||
| Operating |
$ | 4,470 | $ | (1,960 | ) | $ | 3,400 | ||||
Required:
a. Prepare a differential cost schedule. (Select option "increase" or "decrease", keeping Status Quo as the base. Select "none" if there is no effect.)
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