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:
Sales $232,200
Cost of goods sold 108,000
Gross profit $124,200
Operating expenses 145,000
Loss from operations $(20,800)
It is estimated that 12% 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".