Differential Analysis for a Discontinued ProductA condensed income statement by product line for Crown Beverage Inc. indicated the following for Royal Cola for the past year:Sales$236,700Cost of goods sold111,000Gross profitOperating expensesLoss from operations$125,700144,000$(18,300)It is estimated that 16% of the cost of goods sold represents fixed factory overhead costs and that 19% 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 isdiscontinued.a. Prepare a differential analysis, dated March 3, to determine whether Royal Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter zero "0". Use a minus sign to indicate a loss.RevenuesDifferential AnalysisContinue Royal Cola (Alt. 1) or Discontinue Royal Cola (Alt. 2)January 21Continue RoyalDiscontinue RoyalCola (Alternative 1) Cola (Alternative 2)236,700Differential Effecton Income(Alternative 2)236,700Costs:Variable cost of goods soldVariable operating expensesFixed costsIncome (Loss)FeedbackxXx▼Check My WorkFor continue and discontinue alternatives subtract the costs from the revenue. Use percentages to separate variable from fixed costs. Determine the differential effect on income of the revenues, costs, and income (loss) by subtractingalternative 2 from alternative 1.b. Should Star Cola be retained? Explain.YesAs indicated by the differential analysis in part (A), the income would decreaseby $if the product is discontinued.

Differential effect on net income is the difference of net income on continue Royal cola and net…

A condensed income statement by product line for Crown Beverage Inc. indicated the following for Royal Cola for the past year: Sales $236,700 Cost of goods sold 111,000 Gross profit Operating expenses Loss from operations $125,700 144,000 $(18,300) It is estimated that 16% of the cost of goods sold represents fixed factory overhead costs and that 19% 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 discontinued. a. Prepare a differential analysis, dated March 3, to determine whether Royal Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter zero "0". Use a minus sign to indicate a loss. Differential Analysis Revenues Costs: Continue Royal Cola (Alt. 1) or Discontinue Royal Cola (Alt. 2) Variable cost of goods sold Variable operating expenses January 21 Continue Royal Discontinue Royal Cola (Alternative 1) Cola (Alternative 2) 236,700✓ Differential Effect on Income (Alternative 2) 236,700 Fixed costs Income (Loss)

A condensed income statement by product line for Crown Beverage Inc. indicated the following for Royal Cola for the past year: Sales $236,700 Cost of goods sold 111,000 Gross profit Operating expenses Loss from operations $125,700 144,000 $(18,300) It is estimated that 16% of the cost of goods sold represents fixed factory overhead costs and that 19% 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 discontinued. a. Prepare a differential analysis, dated March 3, to determine whether Royal Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter zero "0". Use a minus sign to indicate a loss. Differential Analysis Revenues Costs: Continue Royal Cola (Alt. 1) or Discontinue Royal Cola (Alt. 2) Variable cost of goods sold Variable operating expenses January 21 Continue Royal Discontinue Royal Cola (Alternative 1) Cola (Alternative 2) 236,700✓ Differential Effect on Income (Alternative 2) 236,700 Fixed costs Income (Loss)

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 3E: Differential analysis for a discontinued product A condensed income statement by product line for...

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