Question

Exercise 4-49 (Static) Dropping Product Lines (LO 4-4) Cotrone Beverages makes energy drinks in three flavors: Original, Strawberry, and Orange. The company is currently operating at 75 percent of capacity. Worried about the company's performance, the company president is considering dropping the Strawberry flavor. If Strawberry is dropped, the revenue associated with it would be lost and the related variable costs saved. In addition, the company's total fixed costs would be reduced by 20 percent. Segmented income statements appear as follows Product Sales Variable costs Contribution margin Fixed costs allocated to each product line Operating profit (loss) Original Strawberry $65,200 $85,600 44,000 77,200 $21,200 $ 8,400 9,400 12,800 $11,800 $(3,600) Orange $102,400 80,289 $ 22,200 14,280 $ 8,00 Required: a. Prepare a differential cost schedule. (Select option "increase" or "decrease", keeping Status Quo as the base. Select "none" if there is no effect.)

Answer 1

	Statues Quo	Alternative:Drop Strawbwerry	Difference
Revenue	$                             2,53,200	$                                 1,67,600	$                                85,600	Decrease
Less:Variable Costs	$                             2,01,400	$                                 1,24,200	$                                77,200	Decrease
Contribution margin	$                                51,800	$                                    43,400	$                                  8,400	Decrease
Less:Fixed Costs	$                                35,600	$                                    28,480	$                                  7,120	Decrease
Operating Profit(loss)	$                                16,200	$                                    14,920	$                                  1,280	Decrease