Differential Analysis for a Discontinued Product A condensed income statement by product line for Warrick Beverage Inc. indicated the following for Mango Cola for the past year: Sales $232,500 Cost of goods sold (109,000) Gross profit $123,500 (143,000) $(19,500) Operating expenses Operating loss It is estimated that 13% of the cost of goods sold represents fixed factory overhead costs and that 22% of the operating expenses are fixed. Because Mango 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 February 29 to determine whether Mango Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Revenues Costs: Continue (Alt. 1) or Discontinue (Alt. 2) Mango Cola February 29 Continue Variable cost of goods sold Variable operating expenses Fixed costs Profit (Loss) Differential Effects Discontinue Mango Cola Mango Cola (Alternative 1) (Alternative 2) (Alternative 2) b. Should Mango Cola be retained?

Differential Analysis for a Discontinued Product A condensed income statement by product line for Warrick Beverage Inc. indicated the following for Mango Cola for the past year: Sales $232,500 Cost of goods sold (109,000) Gross profit $123,500 (143,000) $(19,500) Operating expenses Operating loss It is estimated that 13% of the cost of goods sold represents fixed factory overhead costs and that 22% of the operating expenses are fixed. Because Mango 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 February 29 to determine whether Mango Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Revenues Costs: Continue (Alt. 1) or Discontinue (Alt. 2) Mango Cola February 29 Continue Variable cost of goods sold Variable operating expenses Fixed costs Profit (Loss) Differential Effects Discontinue Mango Cola Mango Cola (Alternative 1) (Alternative 2) (Alternative 2) b. Should Mango Cola be retained?

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 3E: Differential analysis for a discontinued product A condensed income statement by product line for...

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