The condensed income statement by product line for Celestial Beverage Inc. Pointed out 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
loss from operations (72,000)
It is evaluated that 15 % of cost of goods sold represents fixed factory overhead costs and that 25% of operating expenses are fixed. As Star Cola is only one of several products, fixed costs will not be materially affected if product is discontinued.
Create the differential analysis, dated January 21, 2014, to find whether Star Cola must be continued (Alternative 1) or discontinued (Alternative 2).
Must Star Cola be retained? Describe.