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 | $234,900 |
Cost of goods sold | 109,000 |
Gross profit | $125,900 |
Operating expenses | 143,000 |
Loss from operations | $(17,100) |
It is estimated that 15% of the cost of goods sold represents fixed factory overhead costs and that 21% 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: | |||
Variable cost of goods sold | |||
Variable operating expenses | |||
Fixed costs | |||
Income (Loss) | $ | $ | $ |
b. Should Fruit Cola be retained?
a | |||
Continue Cups (Alternative 1) | Discontinue Cups (Alternative 2) | Differential Effect on Income (Alternative 2) | |
Revenues | 234900 | 0 | -234900 |
Costs: | |||
Variable cost of goods sold | -92650 | 0 | 92650 |
Variable selling and admin. expenses | -112970 | 0 | 112970 |
Fixed costs | -46380 | -46380 | 0 |
Income (Loss) | -17100 | -46380 | -29280 |
b | |||
Yes, Fruit Cola should be retained. | |||
If Fruit Cola is Discontinued, net income will decrease by $29280 | |||
Workings: | |||
Variable cost of goods sold | =109000*(1-15%) | ||
Variable selling and admin. expenses | =143000*(1-21%) | ||
Fixed costs | =(109000*15%)+(143000*21%) |
Differential Analysis for a Discontinued Product A condensed income statement by product line for Healthy Beverage...
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 $232,400 Cost of goods sold 110,000 $122,400 Gross profit Operating expenses 143,000 Loss from operations $(20,600) It is estimated that 13% 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...
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...
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: $237,800 Sales Cost of goods sold 108,000 Gross profit $129,800 Operating expenses 143,000 Loss from operations $(13,200) It is estimated that 16% of the cost of goods sold represents fixed factory overhead costs and that 20% of the operating expenses are fixed. Because Fruit Cola is only one of many products, the fixed...
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...
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 $233,800 Cost of goods sold 109,000 Gross profit $124,800 Operating expenses 146,000 Loss from operations $(21,200) It is estimated that 13% 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...
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 Cost of goods sold Gross profit $235,200 111,000 Operating expenses $124,200 144,000 $(19,800) Loss from operations It is estimated that 14% of the cost of goods sold represents fixed factory overhead costs and that 18% of the operating expenses are fixed. Because Fruit Cola is only one of many products, the fixed...
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: $234,400 110,000 Sales Cost of goods sold Gross profit Operating expenses $124,400 142,000 Loss from operations $(17,600) It is estimated that 12% 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...
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 yeat: Sales Cost of goods sold Gross profit Operating expenses Loss from operations It is estimated that 12% 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 costs will not be materially...
Differential Analysisfor 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 $234,600 Cost of goods sold 112,000 Gross profit $122,600 Operating expenses 145,000 Loss from operations $(22,400) It is estimated that 12% 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 costs...
Differential Analysis for a Discontinued Product A condensed income statement by product line for British Beverage Inc. indicated the following for Royal Cola for the past year: Sales $232,900 Cost of goods sold 112,000 Gross profit $120,900 Operating expenses 144,000 Loss from operations $(23,100) It is estimated that 16% of the cost of goods sold represents fixed factory overhead costs and that 20% of the operating expenses are fixed. Since Royal Cola is only one of many products, the fixed...