Question

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

Sales	$237,300
Cost of goods sold	110,000
Gross profit	$127,300
Operating expenses	144,000
Loss from operations	$(16,700)

It is estimated that 16% of the cost of goods sold represents fixed factory overhead costs and that 20% of the operating expenses are fixed. Because Fruit 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 January 5 to determine whether Fruit Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". Use a minus sign to indicate a loss.

Differential Analysis
Continue Fruit Cola (Alt. 1) or Discontinue Fruit Cola (Alt. 2)
January 5
	Continue Fruit Cola (Alternative 1)	Discontinue Fruit Cola (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues	$	$	$
Costs:
Variable cost of goods sold
Variable operating expenses
Fixed costs
Income (Loss)	$	$	$

Answer 1

Answer-a)-

DIFFERENTIAL ANALYSIS
	ALTERNATIVE 1	ALTERNATIVE 2	DIFFERENTIAL EFFECTS ON
PARTICULARS	CONTINUE FRUIT COLA	DISCONTINUE FRUIT COLA	INCOME (ALTERNATIVE 2)
	$	$	$
Revenues	237300	0	-237300
Less- Costs
Variable cost of goods sold	$110000*84%= 92400	0	92400
Variable operating expense	$144000*80%= 115200	0	115200
Fixed costs	$17600+$28800= $46400	46400	0
Operating income (loss)	-16700	-46400	-29700

Fruit cola should be continued otherwise losses will increase by $29700.