Differential analysis for a discontinued product

A condensed income statement by product line for Lavonia Beverage Inc. indicated the following for Vim Cola for the past year:

Line Item Description Amount

Sales $$234,500$

Cost of goods sold $(108,000)$

Gross profit $$126,500$

Operating expenses $(145,000)$

Operating loss $$(18,500)$

It is estimated that $15\%$ of the cost of goods sold represents fixed factory overhead costs and that $22\%$ of the operating expenses are fixed. Because Vim Cola is only one of many products, the fixed costs will not be materially affected if the product is discontinued.

Question Content Area

a$.$ Prepare a differential analysis dated November $2$ to determine whether Vim Cola should be continued $($Alternative $1)$ or discontinued $($Alternative $2).$ If an amount is zero, enter $"0".$ If required, use a minus sign to indicate a loss.

Answer rating: 100% (QA)

To prepare a differential analysis to determine whether Vim Cola should be continued or discontinued ... View the full answer