A condensed income statement by product line for Crown Beverage Inc. indicated the following for Royal Cola
Question:
A condensed income statement by product line for Crown Beverage Inc. indicated the following for Royal Cola for the past year:
Sales | $233,100 |
Cost of goods sold | 110,000 |
Gross profit | $123,100 |
Operating expenses | 145,000 |
Loss from operations | $(21,900) |
It is estimated that 15% of the cost of goods sold represents fixed factory overhead costs and that 21% 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, dated March 3, to determine whether Royal Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter zero "0". Use a minus sign to indicate a loss.
Differential Analysis | |||
Continue Royal Cola (Alt. 1) or Discontinue Royal Cola (Alt. 2) | |||
January 21 | |||
Continue Royal Cola (Alternative 1) | Discontinue Royal Cola (Alternative 2) | Differential Effect on Income (Alternative 2) | |
Revenues | $ | $ | $ |
Costs: | |||
The variable cost of goods sold | |||
Variable operating expenses | |||
Fixed costs | |||
Income (Loss) | $ | $ | $ |
b. Should Star Cola be retained? Explain.
As indicated by the differential analysis in part (A), the income would be $ if the product is discontinued.
Accounting
ISBN: 978-0324662962
23rd Edition
Authors: Jonathan E. Duchac, James M. Reeve, Carl S. Warren