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# Differential Analysis for a Discontinued Product A condensed income st.docx

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# Differential Analysis for a Discontinued Product A condensed income st.docx

Differential Analysis for a Discontinued Product
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 13% of the cost of goods sold represents fixed factory overhead costs and that 21% 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.
a. Prepare a differential analysis, dated March 3, 2014, 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, 2014
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)
\$
\$
\$
Solution
Differential Analysis
Continue
(Alternative 1)
Discontinue
(Alternative 2)
Differential
Effect on Income
(Alternative 2)

.

Differential Analysis for a Discontinued Product
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 13% of the cost of goods sold represents fixed factory overhead costs and that 21% 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.
a. Prepare a differential analysis, dated March 3, 2014, 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, 2014
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)
\$
\$
\$
Solution
Differential Analysis
Continue
(Alternative 1)
Discontinue
(Alternative 2)
Differential
Effect on Income
(Alternative 2)

.

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### Differential Analysis for a Discontinued Product A condensed income st.docx

1. 1. Differential Analysis for a Discontinued Product 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 13% of the cost of goods sold represents fixed factory overhead costs and that 21% 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. a. Prepare a differential analysis, dated March 3, 2014, 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, 2014 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) \$ \$
2. 2. \$ Sales \$236,400 Cost of goods sold 108,000 Gross profit \$128,400 Operating expenses 143,000 Loss from operations \$(14,600) Solution Differential Analysis Continue (Alternative 1) Discontinue (Alternative 2) Differential Effect on Income (Alternative 2) Continue (Alternative 1) Discontinue (Alternative 2) Differential Effect on Income (Alternative 2) Revenues 236400 236400 0 Costs: Variable Cost of Goods Sold 93960 93960 0
3. 3. Variable Operating Expenses 112970 112970 0 Fixed Costs 0 44070 (44070) Income (Loss) 29470 (14600) (44070)