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 Royal Cola for the past year:

Sales $232,600

Cost of goods sold 109,000

Gross profit $123,600

Operating expenses 145,000

Loss from operations $(21,400)

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. Since Royal 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, 2014, to determine whether Royal Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter zero "0".

Explanation / Answer

Differntial Analysis

Sales:                                                                                $232,600

Less:cost of goods sold(109000-15%)                               $92,650

Gross profit                                                                    $139,950

Less: operating expenses(145000-21%)                         $114,550

Gain from operation                                                          $25,400

Fixed overheads are not materially affected if product is discontinue so ignored for decision making.

Thus product Royal cola should be continued.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.