Differential Analysis for a Discontinued Product A condensed income statement by product line...
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Accounting
Differential Analysis for a Discontinued Product
A condensed income statement by product line for Healthy Beverage Inc. indicated the following for Fruit Cola for the past year:
Sales
$233,800
Cost of goods sold
109,000
Gross profit
$124,800
Operating expenses
146,000
Loss from operations
$(21,200)
It is estimated that 13% of the cost of goods sold represents fixed factory overhead costs and that 23% of the operating expenses are fixed. Because Fruit 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 January 5 to determine whether Fruit Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". Use a minus sign to indicate a loss.
Differential Analysis
Continue Fruit Cola (Alt. 1) or Discontinue Fruit Cola (Alt. 2)
January 5
Continue Fruit Cola (Alternative 1)
Discontinue Fruit Cola (Alternative 2)
Differential Effect on Income (Alternative 2)
Revenues
$
$
$
Costs:
Variable cost of goods sold
Variable operating expenses
Fixed costs
Income (Loss)
$
$
$
b. Should Fruit Cola be retained?
Answer & Explanation
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