A condensed income statement by product line for celestial beverage inc. indicated the following for star cola for the past year.
sales 290,000
cost of goods sold 155,000
gross profit 135,000
operating expense 207,000
loos from operations 72,000
it is estimated that 15% of the cost of goods sold represents fixed factory overhead costs and that 25% of the operating expenses are fixed. Since 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, 2014 to determine whether star cola should be continued or discontinued
b. should star cola be retained? Explain