A condensed income statement by product line for Celestial Beverage Inc. indicated the following for Star Cola for the past year: Sales $390,000 Cost of goods sold 184,000 Gross profit $206,000 Operating expenses 255,000 Loss from operations $(49,000) It is estimated that 20% of the cost of goods sold represents fixed factory overhead costs and that 30% of the operating expenses are fixed. Because Star 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 January 21 to determine whether to Continue Star Cola (Alternative 1) or Discontinue Star Cola (Alternative 2). If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.
A condensed income statement by product line for Celestial Beverage Inc. indicated the following for Star Cola for the past year: Sales $390,000 Cost of goods sold 184,000 Gross profit $206,000 Operating expenses 255,000 Loss from operations $(49,000) It is estimated that 20% of the cost of goods sold represents fixed factory overhead costs and that 30% of the operating expenses are fixed. Because Star 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 January 21 to determine whether to Continue Star Cola (Alternative 1) or Discontinue Star Cola (Alternative 2). If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.
Chapter9: Responsibility Accounting And Decentralization
Section: Chapter Questions
Problem 6PB: Using the information for Lighthizer Trading Company, prepare the income statement to include all...
Related questions
Topic Video
Question
![Differential Analysis for a Discontinued Product
A condensed income statement by product line for Celestial Beverage Inc. indicated the following for Star Cola for the past year:
Sales
$390,000
Cost of goods sold
184,000
Gross profit
$206,000
Operating expenses
255,000
Loss from operations
$(49,000)
It is estimated that 20% of the cost of goods sold represents fixed factory overhead costs and that 30% of the operating expenses are fixed. Because
Star 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 January 21 to determine whether to Continue Star Cola (Alternative 1) or Discontinue Star Cola (Alternative 2).
If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0d3975cd-4ee1-4a32-9a42-7564910249af%2F5849c83e-e043-4a55-9536-afe767eb14c6%2F729330q_processed.png&w=3840&q=75)
Transcribed Image Text:Differential Analysis for a Discontinued Product
A condensed income statement by product line for Celestial Beverage Inc. indicated the following for Star Cola for the past year:
Sales
$390,000
Cost of goods sold
184,000
Gross profit
$206,000
Operating expenses
255,000
Loss from operations
$(49,000)
It is estimated that 20% of the cost of goods sold represents fixed factory overhead costs and that 30% of the operating expenses are fixed. Because
Star 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 January 21 to determine whether to Continue Star Cola (Alternative 1) or Discontinue Star Cola (Alternative 2).
If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.
![Differential Analysis
Continue Star Cola (Alt. 1) or Discontinue Star Cola (Alt. 2)
January 21
Continue Star
Discontinue Star
Differential Effects
Cola (Alternative 1) Cola (Alternative 2)
(Alternative 2)
Revenues
Costs:
Variable cost of goods sold
Variable operating expenses
Fixed costs
Profit (loss)
b. Should Star Cola be retained? Explain.
As indicated by the differential analysis in part (a), the income would
by $
if the product is discontinued.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0d3975cd-4ee1-4a32-9a42-7564910249af%2F5849c83e-e043-4a55-9536-afe767eb14c6%2F6uf5stn_processed.png&w=3840&q=75)
Transcribed Image Text:Differential Analysis
Continue Star Cola (Alt. 1) or Discontinue Star Cola (Alt. 2)
January 21
Continue Star
Discontinue Star
Differential Effects
Cola (Alternative 1) Cola (Alternative 2)
(Alternative 2)
Revenues
Costs:
Variable cost of goods sold
Variable operating expenses
Fixed costs
Profit (loss)
b. Should Star Cola be retained? Explain.
As indicated by the differential analysis in part (a), the income would
by $
if the product is discontinued.
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 1 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College