A condensed income statement by product line for British Beverage Inc. indicated the following for King Cola for the past year: Sales $235,100 Cost of goods sold 112,000 Gross profit $123,100 Operating expenses 145,000 Loss from operations $(21,900) It is estimated that 16% of the cost of goods sold represents fixed factory overhead costs and that 19% 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, to determine whether to Continue King Cola (Alternative 1) or Discontinue King Cola (Alternative 2). If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential AnalysisContinue King Cola (Alt. 1) or Discontinue King Cola (Alt. 2)March 3 Continue King Cola (Alternative 1) Discontinue King Cola (Alternative 2) Differential Effects (Alternative 2) Revenues $fill in the blank 1d9da605a01c023_1 $fill in the blank 1d9da605a01c023_2 $fill in the blank 1d9da605a01c023_3 Costs: Variable cost of goods sold fill in the blank 1d9da605a01c023_4 fill in the blank 1d9da605a01c023_5 fill in the blank 1d9da605a01c023_6 Variable operating expenses fill in the blank 1d9da605a01c023_7 fill in the blank 1d9da605a01c023_8 fill in the blank 1d9da605a01c023_9 Fixed costs fill in the blank 1d9da605a01c023_10 fill in the blank 1d9da605a01c023_11 fill in the blank 1d9da605a01c023_12 Profit (loss) $fill in the blank 1d9da605a01c023_13 $fill in the blank 1d9da605a01c023_14 $fill in the blank 1d9da605a01c023_15 b. Should King Cola be retained? Explain. As indicated by the differential analysis in part (A), the income would by $fill in the blank 9372d0019ffaf90_3 if the product is discontinued.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter7: Variable Costing For Management analysis

Section: Chapter Questions

Problem 9E: The following data were adapted from a recent income statement of Caterpillar Inc. (CAT) for the...

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A condensed income statement by product line for British Beverage Inc. indicated the following for King Cola for the past year:

Sales	$235,100
Cost of goods sold	112,000
Gross profit	$123,100
Operating expenses	145,000
Loss from operations	$(21,900)

It is estimated that 16% of the cost of goods sold represents fixed factory overhead costs and that 19% 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, to determine whether to Continue King Cola (Alternative 1) or Discontinue King Cola (Alternative 2). If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential AnalysisContinue King Cola (Alt. 1) or Discontinue King Cola (Alt. 2)March 3

	Continue King Cola (Alternative 1)	Discontinue King Cola (Alternative 2)	Differential Effects (Alternative 2)
Revenues	$fill in the blank 1d9da605a01c023_1	$fill in the blank 1d9da605a01c023_2	$fill in the blank 1d9da605a01c023_3
Costs:
Variable cost of goods sold	fill in the blank 1d9da605a01c023_4	fill in the blank 1d9da605a01c023_5	fill in the blank 1d9da605a01c023_6
Variable operating expenses	fill in the blank 1d9da605a01c023_7	fill in the blank 1d9da605a01c023_8	fill in the blank 1d9da605a01c023_9
Fixed costs	fill in the blank 1d9da605a01c023_10	fill in the blank 1d9da605a01c023_11	fill in the blank 1d9da605a01c023_12
Profit (loss)	$fill in the blank 1d9da605a01c023_13	$fill in the blank 1d9da605a01c023_14	$fill in the blank 1d9da605a01c023_15

b. Should King Cola be retained? Explain.

As indicated by the differential analysis in part (A), the income would

by $fill in the blank 9372d0019ffaf90_3 if the product is discontinued.

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