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 $238,000 Cost of goods sold (109,000) Gross profit $129,000 Operating expenses (142,000) Operating loss $(13,000) It is estimated that 12% of the cost of goods sold represents fixed factory overhead costs and that 19% 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 is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Continue (Alt. 1) or Discontinue (Alt. 2) Mango Cola February 29 ContinueMango Cola(Alternative 1) DiscontinueMango Cola(Alternative 2) DifferentialEffects(Alternative 2) Revenues $ $ $ Costs: Variable cost of goods sold Variable operating expenses Fixed costs Profit (Loss) $ $ $ b. Should Mango Cola be retained? Yes No

Managerial Accounting: The Cornerstone of Business Decision-Making

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Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter2: Basic Managerial Accounting Concepts

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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	$238,000
Cost of goods sold	(109,000)
Gross profit	$129,000
Operating expenses	(142,000)
Operating loss	$(13,000)

It is estimated that 12% of the cost of goods sold represents fixed factory overhead costs and that 19% 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 is zero, enter "0". If required, use a minus sign to indicate a loss.

Differential Analysis
Continue (Alt. 1) or Discontinue (Alt. 2) Mango Cola
February 29
	Continue Mango Cola (Alternative 1)	Discontinue Mango Cola (Alternative 2)	Differential Effects (Alternative 2)
Revenues	$	$	$
Costs:
Variable cost of goods sold
Variable operating expenses
Fixed costs
Profit (Loss)	$	$	$

b. Should Mango Cola be retained?

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