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.