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25-3 Exercises & Problems eBook Show Me How Calculator 1. EX.25-01 ALGO Differential Analysis for a Discontinued Product A condensed income statement by product line for British Beverage Inc. indicated the following for Royal Cola for the past year: 2. EX.25-03 ALGO $237,700 3. EX.25-07 ALGO 110,000 Sales Cost of goods sold Gross profit Operating expenses Loss from operations $127,700 4. EX.25-09. ALGO 145,000 5. EX.25-11.ALGO $(17,300) 6. EX.25-13. ALGO It is estimated that 12% of the cost of goods sold represents fixed factory overhead costs and that 22% 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. 7. EX.25-15 ALGO 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 Discontinue Royal Differential Effect on Income Cola (Alternative 1) Cola (Alternative 2) (Alternative 2) Revenues $ 237,700 $ 0 $ -237,700 Costs: Variable cost of goods sold -110,000 X 110,000 x Variable operating expenses -145,000 X 0 1 145,000 X Civndcnete -45.100 45. 100 0 Check My Work 1 more Check My Work uses remaining. Previous Next Droarece.217 items Differential Analysis Continue Royal Cola (Alt. 1) or Discontinue Royal Cola (Alt. 2) January 21 Continue Royal Discontinue Royal Differential Effect Cola (Alternative 1) Cola (Alternative 2) on Income (Alternative 2) Revenues $ 237,700 $ 0 s -237,700 Costs: Variable cost of goods sold -110,000 110,000 Variable operating expenses 145,000 145,000 Fixed costs -45,100 -45,100 Income (Loss) -62,400 X $ 45,100 $ 17,300 X 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 As indicated by the differential analysis in part (A), the income would increase X by $ 17,300 X if the product is discontinued