Cotrone Beverages makes energy drinks in three flavors:Original, Strawberry, and Orange. Company is currently...

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Accounting

Cotrone Beverages makes energy drinks in three flavors:Original, Strawberry, and Orange. Company is currently operating at75 percent of capacity. Worried about the company's performance,the company president is considering dropping the Strawberryflavor. If Strawberry is dropped, the revenue associated with itwould 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 $ 33,200 $ 42,800 $ 51,300
Variable costs 23,240 38,520 41,040
Contribution margin $ 9,960 $ 4,280 $ 10,260
Fixed costs allocated to eachproduct line 4,700 5,500 7,500
Operating profit (loss) $ 5,260 $ (1,220 ) $ 2,760
Required:
a. Prepare a differential cost schedule.
Status Quo Alternative: Drop Strawberry Difference (all lower under the alternative)
Revenue
Less: Variable costs
Contribution margin
Less: Fixed costs
Operating profit(loss)
b. Should Cotrone drop the Strawberry productline?
Yes
No

Answer & Explanation Solved by verified expert

3.8 Ratings (453 Votes)

Working Fixed costs Original 470000 Strawberry 550000 Orange 750000 Total Fixed cost 1770000 15 of Total fixed cost 265500 Fixed cost after dropping Strawberry 1504500 See Answer

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In: AccountingCotrone Beverages makes energy drinks in three flavors:Original, Strawberry, and Orange. Company is currently operating...Cotrone Beverages makes energy drinks in three flavors:Original, Strawberry, and Orange. Company is currently operating at75 percent of capacity. Worried about the company's performance,the company president is considering dropping the Strawberryflavor. If Strawberry is dropped, the revenue associated with itwould 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:ProductOriginalStrawberryOrangeSales$33,200$42,800$51,300Variable costs23,24038,52041,040Contribution margin$9,960$4,280$10,260Fixed costs allocated to eachproduct line4,7005,5007,500Operating profit (loss)$5,260$(1,220)$2,760Required:a. Prepare a differential cost schedule.Status QuoAlternative: Drop StrawberryDifference (all lower under the alternative)RevenueLess: Variable costsContribution marginLess: Fixed costsOperating profit(loss)b. Should Cotrone drop the Strawberry productline?YesNo

Product	Original		Strawberry			Orange
Sales	$	33,200	$	42,800		$	51,300
Variable costs		23,240		38,520			41,040
Contribution margin	$	9,960	$	4,280		$	10,260
Fixed costs allocated to eachproduct line		4,700		5,500			7,500
Operating profit (loss)	$	5,260	$	(1,220	)	$	2,760