ifferential Analysis for a Discontinued Product A condensed income statement by

Question

ifferential Analysis for a Discontinued Product A condensed income statement by product line for Crown Beverage Inc. indicated the following for Royal Cola for the past year: Sales $233,700 Cost of goods sold 110,000 Gross profit $123,700 Operating expenses 143,000 Loss from operations $(19,300) It is estimated that 13% of the cost of goods sold represents fixed factory overhead costs and that 20% 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

Explanation / Answer

Statement showing computations Particulars Continued Discontinue Difference Sales        233,700.00                         233,700.00 Variable Costs: Cost of goods sold          95,700.00                           95,700.00 Operating Expenses        114,400.00                         114,400.00 Total Variable Costs        210,100.00                          -                           210,100.00 Contribution = Sales - VC          23,600.00                          -                             23,600.00 Fixed Costs: Cost of goods sold          14,300.00           14,300.00                                           -   Operating Expenses          28,600.00           28,600.00                                           -   Total fixed Costs          42,900.00           42,900.00                                           -   Income        (19,300.00)         (42,900.00)                           23,600.00 Company should continue royal cola

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