Question

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 15 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 $32,600 $43,100 22,820 38,79€ $ 9,780 $ 4,310 4,900 6,40€ $ 4,889 $(2,090) Orange $51.300 41,040 $10,260 7,000 $ 3,260 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

Required: a. Prepare a differential cost schedule. Revenue Less: Variable costs Contribution margin Less: Fixed costs Operating profit (loss) Status Quo 127,000 102,650 24,350 18,300 6,050 Alternative Drop Strawberry 83,900 63,860 20,040 15,555 4,485 Difference 43,100 Decrease 38,790 Decrease 4,310 Decrease 2,745 Decrease 1,565 Decrease Status Quo Revenue Variable costs Fixed costs 32600+43100+51300 22820+38790+41040 4900+6400+7000 127000 102650 18300 Alternative Drop Strawberry Revenue Variable costs Fixed costs 32600+51300 22820+41040 (18300)-18300*15% 83900 63860 15555 35