A condensed income statement by product line for Crown Beverage Inc. indicated the following for King Cola for the past year: Sales $232,500 Cost of goods sold 108,000 Gross profit $124,500 Operating expenses 146,000 Loss from operations $(21,500) t 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 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 to Continue King Cola (Alternative 1) or Discontinue King 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 King Cola (Alt. 1) or Discontinue King Cola (Alt. 2) March 3 Continue King Discontinue King 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 King Cola be retained? Explain. As indicated by the differential analysis in part (A), the income would if the product is discontinued.
A condensed income statement by product line for Crown Beverage Inc. indicated the following for King Cola for the past year: Sales $232,500 Cost of goods sold 108,000 Gross profit $124,500 Operating expenses 146,000 Loss from operations $(21,500) t 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 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 to Continue King Cola (Alternative 1) or Discontinue King 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 King Cola (Alt. 1) or Discontinue King Cola (Alt. 2) March 3 Continue King Discontinue King 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 King Cola be retained? Explain. As indicated by the differential analysis in part (A), the income would if the product is discontinued.
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter2: Basic Cost Management Concepts
Section: Chapter Questions
Problem 13E: Wyandotte Company provided the following information for the last calendar year: During the year,...
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