A condensed income statement by product line for Healthy Beverage Inc. indicated
ID: 2397621 • Letter: A
Question
A condensed income statement by product line for Healthy Beverage Inc. indicated the following for Fruit Cola for the past year:
It is estimated that 14% 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.
Sales $235,000 Cost of goods sold 109,000 Gross profit $126,000 Operating expenses 142,000 Loss from operations $(16,000)Explanation / Answer
Differential Analysis
Continue Fruit Cola (Alt. 1) or Discontinue Fruit Cola (Alt. 2)
Januray 5
Continue Fruit Cola (Alternative 1)
Discontinue Fruit Cola (Alternative 2)
Differential Effect on Income (Alternative 2)
Revenues
235000
0
-235000
Costs:
0
Variable cost of goods sold
93740
0
-93740
Variable operating expenses
112180
0
-112180
Fixed costs
45080
45080
0
Income (Loss)
-16000
-45080
-29080
The product line should not be discontinued because discontinuing will lead to more loss.
Differential Analysis
Continue Fruit Cola (Alt. 1) or Discontinue Fruit Cola (Alt. 2)
Januray 5
Continue Fruit Cola (Alternative 1)
Discontinue Fruit Cola (Alternative 2)
Differential Effect on Income (Alternative 2)
Revenues
235000
0
-235000
Costs:
0
Variable cost of goods sold
93740
0
-93740
Variable operating expenses
112180
0
-112180
Fixed costs
45080
45080
0
Income (Loss)
-16000
-45080
-29080
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.