Business, 02.03.2020 21:56 mashejaj

Cotrone Beverages makes energy drinks in three flavors: Original, Strawberry, and Orange. The 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 20 percent.

Segmented income statements appear as follows:

Product Original Strawberry Orange
Sales $ 65,200 $ 85,600 $ 102,400
Variable costs 44,000 77,200 80,200
Contribution margin $ 21,200 $ 8,400 $ 22,200
Fixed costs allocated to each product line 9,400 12,000 14,200
Operating profit (loss) $ 11,800 $ (3,600 ) $ 8,000
Required:

a. Prepare a differential cost schedule.

b. Should Cotrone drop the Strawberry product line?

Yes
No

Answers: 3

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Cotrone Beverages makes energy drinks in three flavors: Original, Strawberry, and Orange. The compan...

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