Differential Analysis for a Discontinued Product A condensed income statement by product line for Warrick...
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Accounting
Differential Analysis for a Discontinued Product
A condensed income statement by product line for Warrick Beverage Inc. indicated the following for Mango Cola for the past year:
Sales
$232,100
Cost of goods sold
(112,000)
Gross profit
$120,100
Operating expenses
(146,000)
Operating loss
$(25,900)
It is estimated that 14% of the cost of goods sold represents fixed factory overhead costs and that 23% of the operating expenses are fixed. Because Mango 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 February 29 to determine whether Mango Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.
Differential Analysis Continue (Alt. 1) or Discontinue (Alt. 2) Mango Cola February 29
Continue Mango Cola (Alternative 1)
Discontinue Mango Cola (Alternative 2)
Differential Effects (Alternative 2)
Revenues
Costs:
Variable cost of goods sold
Variable operating expenses
Fixed costs
Profit (Loss)
b. Should Mango Cola be retained?
Answer & Explanation
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