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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
Differential analysis for a discontinued product
A condensed income statement by product line for Celestial Beverage Inc. indicated the following for Star Cola for the past year:
|
Sales |
$390,000 |
|
Cost of goods sold |
184,000 |
|
Gross profit |
$206,000 |
|
Operating expenses |
255,000 |
|
Loss from operations |
$ (49,000) |
It is estimated that 20% of the cost of goods sold represents fixed factory overhead costs and that 30% of the operating expenses are fixed. Because Star 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 21 to determine whether Star Cola should be continued (Alternative 1) or discontinued (Alternative 2).
b.
Should Star Cola be retained? Explain.
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