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.

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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

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