Question

# Differential Analysis for a Discontinued Product A condensed income statement by product line for Crown Beverage...

Differential Analysis for a Discontinued Product

A condensed income statement by product line for Crown Beverage Inc. indicated the following for Royal Cola for the past year:

 Sales \$233,900 Cost of goods sold 109,000 Gross profit \$124,900 Operating expenses 144,000 Loss from operations \$(19,100)

It is estimated that 15% of the cost of goods sold represents fixed factory overhead costs and that 20% of the operating expenses are fixed. Since Royal 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 Royal Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter zero "0". Use a minus sign to indicate a loss.

 Differential Analysis Continue Royal Cola (Alt. 1) or Discontinue Royal Cola (Alt. 2) January 21 Continue Royal Cola (Alternative 1) Discontinue Royal Cola (Alternative 2) Differential Effect on Income (Alternative 2) Revenues Costs: Variable cost of goods sold Variable operating expenses Fixed costs Income (Loss)

 Differential Analysis Continue Royal Cola (Alt. 1) or Discontinue Royal Cola (Alt. 2) January 21 Continue Royal Cola (Alternative 1) Discontinue Royal Cola (Alternative 2) Differential Effect on Income (Alternative 2) Revenues \$233,900 \$0 \$-233,900 Costs: Variable cost of goods sold -92,650 0 92,650 Variable operating expenses -115,200 0 115,200 Fixed costs 45,150 45,150 0 Income (Loss) \$-19,100 \$-45,150 \$-26,050

Fixed cost of goods sold= \$109,000*15%= \$16,350

Variable cost of goods sold= \$109,000-16,350= \$92,650

Fixed operating expenses= \$144,000*20%= \$28,800

Variable operating expenses= \$144,000-28,800= \$115,200

Fixed costs= Fixed cost of goods sold+Fixed operating expenses

= \$16,350+28,800= \$45,150

NOTE:- Please rate the answer and for any problem regarding the answer please ask in the comment section.

#### Earn Coins

Coins can be redeemed for fabulous gifts.