A condensed income statement by product line for Crown Beverage Inc. indicated t

Question

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

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 King Cola is only one of many products, the fixed costs will not be materially affected if the product is discontinued.

Prepare a differential analysis, dated March 3, 2012, to determine whether King Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter zero "0".

Differential Analysis Continue King Cola (Alt. 1) or Discontinue King Cola (Alt. 2) March 3, 2012 Continue King Cola (Alternative 1) Discontinue King Cola (Alternative 2) Differential Effect on Income (Alternative 2) Revenues $ $ $ Costs: Variable cost of goods sold Variable operating expenses Fixed costs Income (Loss) $ $ $

Explanation / Answer

continue King Discontinue King Differential revenues 235,000 0 -235,000 costs: variable COGS 92,400 0 92,400 variable OE 115,200 0 115,200 fixed costs 46,400 46,400 0 income(loss) -19,000 -46,400 -27,400

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