A condensed income statement by product line for British Beverage Inc. indicated the following for Royal Cola for the past year: Sales $254,000 Cost of
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A condensed income statement by product line for British Beverage Inc. indicated the following for Royal Cola for the past year:
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Sales $254,000
Cost of goods sold 122,000
Gross profit $132,000
Operating expenses 156,000
Loss from operations $(24,000)
It is estimated that 16% of the cost of goods sold represents fixed factory overhead costs and that 20% of the operating expenses are fixed. Since Royal 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 report, dated March 3, 2010, for the proposed discontinuance of Royal Cola.
(b) Should Royal Cola be retained? Explain.
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a b Royal Cola should be retained As indicated by t... View full answer
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