Question

A condensed income statement by product line for Cola Beverages Inc. indicated the following for Kiwi Cola for the past year:
Sales ............ $ 4,000,000
Cost of goods sold ....... 3,175,000
Gross profit .......... $ 825,000
Operating expenses ....... 1,100,000
Loss from operations ....... $ (275,000)
It is estimated that 40% of the cost of goods sold represents fixed factory overhead costs and that 30% of the operating expenses are fixed. Since Kiwi Cola is only one of many products, the fixed costs will not be significantly affected if the product is discontinued.
a. Prepare a differential analysis report for the proposed discontinuance of Kiwi Cola.
b. Should Kiwi Cola be retained? Explain.



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  • CreatedMarch 11, 2014
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