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Differential Analysis for a Discontinued Product A condensed income statement by product line for British Beverage Inc. indicated the following for King Cola for the past year Sales $236,600 Cost of goods sold 108,000 Gross profit $128,600 Operating expenses 145,000 Loss from operations $(16,400) It is estimated that 12% of the cost of goods sold represents fixed factory overhead costs and that 20% of the operating expenses are fixed. Since King 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 King Cola should be continued (Alternative 1) or discontinued (Alternative 2). an amount is zero, enter zero "0". Use a minus sign to indicate a loss Differential Analysis Continue King Cola (Alt. 1) or Discontinue King Cola (Alt. 2) January 21 Differential Effect Continue King Discontinue King on Income Cola (Alternative 1) Cola (Alternative 2) (Alternative 2) 286.600X Revenues 236,600 Costs: Variable cost of goods sold Variable operating expenses Previous Next 0 0 Continue King Discontinue King Cola (Alternative 1) Cola (Alternative 2) Differential Effect on Income (Alternative 2) 286,600 X 236,600 o Revenues Costs: Variable cost of goods sold Variable operating expenses 0 Fixed costs Income (Loss) Feedback Check My Work For continue and discontinue alternatives subtract the costs from the revenue, use percentages to separate variable from fixed costs Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 2 from alternative 1. b. Should Star Cola be retained? Explain. Yes by If the product is discontinued As indicated by the differential analysis in part (A), the income would decrease