Cotrone Beverages makes energy drinks in three flavors: Original, Strawberry, an
ID: 2339398 • Letter: C
Question
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 Sales Variable costs OriginalStrawberry Orange $32,700 $43,000 $51,100 38,700 $ 9,810 4,300 $10,220 6,200 22,890 40,880 Contribution margin Fixed costs allocated to each product line 5,300 7.700 Operating profit (loss) 4,510 (1,900) S 2,520 Required a. Prepare a differential cost schedule Alternative: Difference (all lower under Status Quo ro Strawberry the alternative) Revenue Less: Variable costs Contribution margin Less: Fixed costs Operating profit (loss)Explanation / Answer
b.
No as it results in the reduction of opertaing income.
Status Quo Alternative : Drop Strawberry Difference (all lower under the alternative) Revenue $126,800 ($32,700+$43,000+$51,100) $83,800 ($32,700+$51,100) $43,000 Less : Variable costs $102,470 ($22,890+$38,700+$40,880) $63,770 ($22,890+$40,880) $38,700 Contribution margin $24,330 $20,030 $44,300 Fixed costs $19,200 ($5,300+$6,200+$7,700) $16,320 [$19,200-($19,200*15%)] $2,880 Operating profit (loss) $5,130 $3,710 $1,420