Question

2. 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. 12 points Segmented income statements appear as follows: Skipped Product Sales Variable costa Contribution margin Fixed coata allocated to ench product line Operating profit (lon) Original $32,300 22,610 $ 9,690 eBook Strawberry 643,000 30,700 64,500 6,000 $(1,7001 Orange 651,600 41,280 610,320 7.900 $ 2,420 4,400 $ 5,290 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.) Status Quo Alternative: Drop Strawberry Difference Revenue Los Variable costs Contribution margin Less: Fixed costs Operating profit (1055)

Answer 1

Alternative Drop Status Quo Strawberry Revenue 126900 83900 Less : Variable costs 102590 63890 Contribution Margin 24310 20010 Less : Fixed costs 18300 15555 Operating profit(loss 6010 4455 Diffrence 43000 Decrease 38700 Decrease 4300 Decrease 2745 Decrease 1555 Decrease Working Note: Status Quo Revenue Variable cost Fixed cost 126900 (32300+43000+51600) 102590 (22610+38700+41280) 18300 (4400+6000+7900) Alternative Drop Strawberry Revenue Variable cost Fixed cost 83900 (32300+51600) 63890 (22610+41280) 15555 (18300)-18300*15%

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