Question

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	(112,000)
Gross profit	$120,500
Operating expenses	(145,000)
Operating loss	$(24,500)

It is estimated that 13% 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?

Answer 1

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