A condensed income statement by product line for British Beverage Inc. indicated the following for Royal Cola for the past year: Sales $236,800 Cost of goods sold 109,000 Gross profit $127,800 Operating expenses 145,000 Loss from operations $(17,200) It is estimated that 14% of the cost of goods sold represents fixed factory overhead costs and that 19% 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 $fill in the blank 0eb46df4afdc006_1 $fill in the blank 0eb46df4afdc006_2 $fill in the blank 0eb46df4afdc006_3 Costs: Variable cost of goods sold fill in the blank 0eb46df4afdc006_4 fill in the blank 0eb46df4afdc006_5 fill in the blank 0eb46df4afdc006_6 Variable operating expenses fill in the blank 0eb46df4afdc006_7 fill in the blank 0eb46df4afdc006_8 fill in the blank 0eb46df4afdc006_9 Fixed costs fill in the blank 0eb46df4afdc006_10 fill in the blank 0eb46df4afdc006_11 fill in the blank 0eb46df4afdc006_12 Income (Loss) $fill in the blank 0eb46df4afdc006_13 $fill in the blank 0eb46df4afdc006_14 $fill in the blank 0eb46df4afdc006_15 b. Should Star Cola be retained? Explain. As indicated by the differential analysis in part (A), the income would by $fill in the blank 6ddd5ff9dff8fb8_3 if the product is discontinued.
A condensed income statement by product line for British Beverage Inc. indicated the following for Royal Cola for the past year:
Sales | $236,800 |
Cost of goods sold | 109,000 |
Gross profit | $127,800 |
Operating expenses | 145,000 |
Loss from operations | $(17,200) |
It is estimated that 14% of the cost of goods sold represents fixed
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 | $fill in the blank 0eb46df4afdc006_1 | $fill in the blank 0eb46df4afdc006_2 | $fill in the blank 0eb46df4afdc006_3 |
Costs: | |||
Variable cost of goods sold | fill in the blank 0eb46df4afdc006_4 | fill in the blank 0eb46df4afdc006_5 | fill in the blank 0eb46df4afdc006_6 |
Variable operating expenses | fill in the blank 0eb46df4afdc006_7 | fill in the blank 0eb46df4afdc006_8 | fill in the blank 0eb46df4afdc006_9 |
Fixed costs | fill in the blank 0eb46df4afdc006_10 | fill in the blank 0eb46df4afdc006_11 | fill in the blank 0eb46df4afdc006_12 |
Income (Loss) | $fill in the blank 0eb46df4afdc006_13 | $fill in the blank 0eb46df4afdc006_14 | $fill in the blank 0eb46df4afdc006_15 |
b. Should Star Cola be retained? Explain.
As indicated by the differential analysis in part (A), the income would by $fill in the blank 6ddd5ff9dff8fb8_3 if the product is discontinued.
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