EX 9-2 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 the goods sold $122,000
Gross profit $132,000
Operating expenses $156,000
Loss from operations ($24,000)
It is estimated 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?
Click here for the solution: A condensed income statement by product line for British Beverage Inc. indicated the following for Royal Cola for the past year
