A condensed income statement by product line for Western Beverages Inc. indicated the following for Lime Cola for the past year:
Sales .......... $2,450,000
Cost of goods sold ..... 2,100,000
Gross profit ....... $ 350,000
Operating expenses ..... 980,000
Loss from operations ... $ (630,000)

It is estimated that 30% of the cost of goods sold represents fixed factory over-head costs and that 25% of the operating expenses are fixed. Since Lime 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, dated February 13, 2012, for the proposed discontinuance of Lime Cola.
b. Should Lime Cola be retained? Explain.