(Answered) Question - a condensed income statement by product line for

Accounting

Question - A condensed income statement by product line for British Beverage Inc., indicated the following for Royal Cola for the past year:

Sales 254,000

Cost of Goods Sold 122,000

Gross profit 132,000

Operating expenses 156,000

Loss from Operations -24,000

It is estimates that 16% of the cost of goods sold represents fixed factory overhead costs and that 20% 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 report, dated March 3, 2010, for the proposed discontinuance of Royal Cola.

b. Should Royal Cola be retained? Explain.

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