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 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 | $ | 42,100 | $ | 51,400 | |||
| Variable costs | 22,750 | 37,890 | 41,120 | ||||||
| Contribution margin | $ | 9,750 | $ | 4,210 | $ | 10,280 | |||
| Fixed costs allocated to each product line | 4,900 | 5,900 | 7,200 | ||||||
| Operating profit (loss) | $ | 4,850 | $ | (1,690 | ) | $ | 3,080 | ||
Required:
a. Prepare a differential cost schedule.
b. Should Cotrone drop the Strawberry product line?
| Yes | |
| No |
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