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

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

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


Sales	$391,300
Cost of goods sold	188,900
Gross profit	$202,400
Operating expenses	254,500
Loss from operations	$ (52,100)

It is estimated that 19% of the cost of goods sold represents fixed factory overhead costs and that 35% 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.

	Required:
a.	Prepare a differential analysis dated January 5 to determine whether Fruit Cola should be continued (Alternative 1) or discontinued (Alternative 2). Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.
b.	Should Fruit Cola be retained? Explain.

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Answer 1

Answer #1

Statement Showing Differential Analysis
	Continue (Alternative 1)	Discontinue (Alternative 2)	Differential Effect
Revenues	$391,300	$0	-$391,300
Costs
Variable Cost of Goods Sold (188900*81%)	-$153,009	$0	$153,009
Variable Operating Expenses (254500*65%)	-$165,425	$0	$165,425
Fixed Costs (18890019% + 25450035%)	-$124,966	-$124,966	$0
Income (Loss)	-$52,100	-$124,966	-$72,866

No, it's not advisable to retained Fruit Cola because due to discontinue the Fruit cola net loss will be reduced to $72866

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Answer 2

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