Question

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 $236,900 112,000 Cost of goods sold Gross profit $124,900 Operating expenses 142,000 $(17,100) Loss from operations 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. 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:

Answer 1

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в Answer Differential Analysis Continue or Discountinue January.5 Continue Fruit Cola (alt.1) Discontinue Fruit Cola (alt.2) Differential effect on income (alternative 2) 236900 (236900) 7 Revenue 8 Costs 9 Variable cost of goods sold (112000*88%) 10 Variable operating expenses (142000*78%) Fixed costs ((112000*12%)+(142000*22%)) 12 Income/ (loss) 98560 110760 44680 (17100) 98560 110760 0 (27580) 44680 (44680) 14