Question

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

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 $15,000,000
Cost of goods sold (10,800,000)
Gross profit $4,200,000
Operating expenses (8,000,000)
Operating loss $(3,800,000)

It is estimated that 30% of the cost of goods sold represents fixed factory overhead costs and that 25% 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 $fill in the blank 282f0403bfe3fb4_1 $fill in the blank 282f0403bfe3fb4_2 $fill in the blank 282f0403bfe3fb4_3
Costs:
Variable cost of goods sold fill in the blank 282f0403bfe3fb4_4 fill in the blank 282f0403bfe3fb4_5 fill in the blank 282f0403bfe3fb4_6
Variable operating expenses fill in the blank 282f0403bfe3fb4_7 fill in the blank 282f0403bfe3fb4_8 fill in the blank 282f0403bfe3fb4_9
Fixed costs fill in the blank 282f0403bfe3fb4_10 fill in the blank 282f0403bfe3fb4_11 fill in the blank 282f0403bfe3fb4_12
Profit (Loss) $fill in the blank 282f0403bfe3fb4_13 $fill in the blank 282f0403bfe3fb4_14 $fill in the blank 282f0403bfe3fb4_15

b. Should Mango Cola be retained?

Homework Answers

Answer #1

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 15000000 0 -15000000
Costs:
Variable cost of goods sold -7560000 0 7560000
Variable operating expenses -6000000 0 6000000
Fixed costs -5240000 -5240000 0
Profit (Loss) -3800000 -5240000 -1440000

b. Should Mango Cola be retained?

Yes

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