A condensed income statement by product line for British Beverage Inc. indicated the following for King Cola for the past year: Sales $233,300 Cost of goods sold 110,000 Gross profit $123,300 Operating expenses 145,000 Loss from operations $(21,700) It is estimated that 12% of the cost of goods sold represents fixed factory overhead costs and that 22% of the operating expenses are fixed. Since King 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 King 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 King Cola (Alt. 1) or Discontinue King Cola (Alt. 2) January 21 Continue King Cola (Alternative 1) Discontinue King Cola (Alternative 2) Differential Effect on Income (Alternative 2) Revenues $ $ $ Costs: Variable cost of goods sold Variable operating expenses Fixed costs Income (Loss) $ $ $ b. Should Star Cola be retained? Explain. As indicated by the differential analysis in part (A), the income would by $ if the product is discontinued.
A condensed income statement by product line for British Beverage Inc. indicated the following for King Cola for the past year: Sales $233,300 Cost of goods sold 110,000 Gross profit $123,300 Operating expenses 145,000 Loss from operations $(21,700) It is estimated that 12% of the cost of goods sold represents fixed factory overhead costs and that 22% of the operating expenses are fixed. Since King 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 King 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 King Cola (Alt. 1) or Discontinue King Cola (Alt. 2) January 21 Continue King Cola (Alternative 1) Discontinue King Cola (Alternative 2) Differential Effect on Income (Alternative 2) Revenues $ $ $ Costs: Variable cost of goods sold Variable operating expenses Fixed costs Income (Loss) $ $ $ b. Should Star Cola be retained? Explain. As indicated by the differential analysis in part (A), the income would by $ if the product is discontinued.
Related questions
24-5
Differential Analysis for a Discontinued Product
The condensed product-line income statement for PorcelainTableware Company for the month of December is as follows:
| PorcelainTableware Company Product-Line Income Statement For the Month Ended December 31, 2014 | ||||||||
| Bowls | Plates | Cups | ||||||
| Sales | $65,900 | $90,300 | $25,900 | |||||
| Cost of goods sold | 25,500 | 32,000 | 14,000 | |||||
| Gross profit | $40,400 | $58,300 | $11,900 | |||||
| Selling and administrativeexpenses | 29,400 | 34,100 | 15,500 | |||||
| Income from operations | $11,000 | $24,200 | $(3,600) | |||||
Fixed costs are 12% of the cost of goods sold and 38% of theselling and administrative expenses. Porcelain Tableware assumesthat fixed costs would not be materially affected if the Cups linewere discontinued.
a. Prepare a differential analysis datedDecember 31, 2014, to determine if Cups should be continued(Alternative 1) or discontinued (Alternative 2). If an amount iszero, enter zero "0".
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The condensed product-line income statement for Dish Nâ DatCompany for the month of March is as follows:
Dish Nâ Dat Company |
Product-Line Income Statement |
For the Month Ended March 31, 2016 |
1 | Bowls | Plates | Cups | |
2 | Sales | $70,960.00 | $105,450.00 | $31,760.00 |
3 | Cost of goods sold | 32,990.00 | 42,680.00 | 16,710.00 |
4 | Gross profit | $37,970.00 | $62,770.00 | $15,050.00 |
5 | Selling and administrative expenses | 27,350.00 | 42,530.00 | 16,670.00 |
6 | Income from operations | $10,620.00 | $20,240.00 | $(1,620.00) |
Fixed costs are 30% of the cost of goods sold and 50% of theselling and administrative expenses. Dish Nâ Dat assumes that fixedcosts would not be materially affected if the Cups line werediscontinued.
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| A. | Prepare a differential analysisdated March 31, 2016, to determine if Cups should be continued(Alternative 1) or discontinued (Alternative 2). Refer to the listsof Labels and Amount Descriptions for the exact wording of theanswer choices for text entries. For those boxes in which you mustenter subtracted or negative numbers use a minus sign. If there isno amount or an amount is zero, enter "0". A colon (:) willautomatically appear if required. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| B. | Should the Cups line be retained? Explain
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