Differential Analysis for a Discontinued Product A condensed income statement by product line for Lavonia Beverage Inc. indicated the following for Vim Cola for the past year: Sales $12,500,000 Cost of goods sold (10,000,000) Gross profit $2,500,000 Operating expenses Operating loss (3,500,000) $(1,000,000) It is estimated that 25% of the cost of goods sold represents fixed factory overhead costs and that 10% of the operating expenses are fixed. Because Vim 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 November 2 to determine whether Vim 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) Vim Cola November 2 Continue Discontinue Line Item Description Vim Cola Vim Cola Differential Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues
Differential Analysis for a Discontinued Product A condensed income statement by product line for Lavonia Beverage Inc. indicated the following for Vim Cola for the past year: Sales $12,500,000 Cost of goods sold (10,000,000) Gross profit $2,500,000 Operating expenses Operating loss (3,500,000) $(1,000,000) It is estimated that 25% of the cost of goods sold represents fixed factory overhead costs and that 10% of the operating expenses are fixed. Because Vim 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 November 2 to determine whether Vim 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) Vim Cola November 2 Continue Discontinue Line Item Description Vim Cola Vim Cola Differential Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues
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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