Prepare a differential cost schedule

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Reference no: EM132480982

Point 1: Cotrone Beverages makes energy drinks in three flavors: Original, Strawberry, and Orange. Company is currently operating at 75 percent of capacity. Worried about the company's performance, the company president is considering dropping the Strawberry flavor. If Strawberry is dropped, the revenue associated with it would be lost and the related variable costs saved. In addition, the company's total fixed costs would be reduced by 15 percent.

Segmented income statements appear as follows:

Product Original Strawberry Orange

Sales $32,500 $43,500 $50,900

Variable costs 22,750 39,150 40,720

Contribution margin $9,750 $4,350 $10,180

Fixed costs allocated to each product line 4,900 6,500 7,100

Operating profit (loss) $4,850 $(2,150) $3,080

Required:

Question a. Prepare a differential cost schedule.

Status QuoAlternative: Drop StrawberryDifference (all lower under the alternative)Revenue Less: Variable costs Contribution margin

Less: Fixed costs Operating profit (loss)

Question b. Should Cotrone drop the Strawberry product line?

Reference no: EM132480982

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