Transcribed Image Text: Differential Analysis for a Discontinued Product A condensed income statement by product line for British Beverage Inc. indicated the following for Royal Cola for the past year:

Transcribed Image Text: Differential Analysis for a Discontinued Product
A condensed income statement by product line for British Beverage Inc. indicated the following for Royal Cola for the past year:
Sales
$236,600
Cost of goods sold
111,000
Gross profit
$125,600
Operating expenses
144,000
Loss from operations
$(18,400)
It is estimated that 16 % of the cost of goods sold represents fixed factory overhead costs and that 23 % 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
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
Continue Royal Cola (Alt. 1) or Discontinue Royal Cola (Alt. 2)
January 21
Differential Effect
Continue Royal
Cola (Alternative 1) Cola (Alternative 2)
Discontinue Royal
on Income
(Alternative 2)
Revenues
Costs:
Variable cost of goods sold
Variable operating expenses
Fixed costs
$
Income (Loss) Transcribed Image Text: decrease
b. Should Star Cola be retained? Explain.
increase
by $
As indicated by the differential analysis in part (A), the income would
if the product is discontinued.

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