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 | $236,700 |
Cost of goods sold | (109,000) |
Gross profit | $127,700 |
Operating expenses | (142,000) |
Operating loss | $(14,300) |
It is estimated that 15% of the cost of goods sold represents fixed factory overhead costs and that 23% 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) | $ | $ | $ |
Differential Analysis | |||
Continue Mango cola | Discontinue Mango cola | Differential effects | |
Revenues | $2,36,000 | $0 | -$2,36,000 |
Variable costs: | |||
Cost of goods sold | -$92,650 | $0 | $92,650 |
Operating expenses | -$1,09,340 | $0 | $1,09,340 |
Fixed Costs | -$49,010 | -$49,010 | $0 |
Profit/(Loss) | -$15,000 | -$49,010 | -$34,010 |
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...
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 $236,800 Cost of goods sold (109,000) Gross profit $127,800 Operating expenses (144,000) Operating loss $(16,200) It is estimated that 13% of the cost of goods sold represents fixed factory overhead costs and that 21% of the operating expenses are fixed. Because Mango Cola is only one of many products, the fixed costs...
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 $232,600 Cost of goods sold (108,000) Gross profit $124,600 Operating expenses (142,000) Operating loss $(17,400) It is estimated that 16% of the cost of goods sold represents fixed factory overhead costs and that 21% of the operating expenses are fixed. Because Mango Cola is only one of many products, the fixed costs...
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 $236,900 Cost of goods sold (110,000) Gross profit $126,900 Operating expenses (146,000) Operating loss $(19,100) It is estimated that 16% of the cost of goods sold represents fixed factory overhead costs and that 21% of the operating expenses are fixed. Because Mango Cola is only one of many products, the fixed costs...
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Differential Analysis for a Discontinued Product A condensed income statement by product line for Healthy Beverage Inc. indicated the following for Fruit Cola for the past year: Sales $236,000 Cost of goods sold 108,000 Gross profit $128,000 Operating expenses 146,000 Loss from operations $(18,000) It is estimated that 15% of the cost of goods sold represents fixed factory overhead costs and that 23% of the operating expenses are fixed. Because Fruit Cola is only one of many products, the fixed...
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