91Ó°ÊÓ

A condensed income statement by product line for Nordic Beverage Inc. indicated the following for Diet Kola for the past year: \begin{tabular}{lr} Sales & \(\$ 486,000\) \\ Cost of goods sold & 258,000 \\ Gross profit & \(\$ 228,000\) \\ Operating expenses & 260,000 \\ Loss from operations & \(\$(32,000)\) \\ \hline \end{tabular} It is estimated that \(20 \%\) of the cost of goods sold represents fixed factory overhead costs and that \(25 \%\) of the operating expenses are fixed. Since Diet Kola is only one of many products, the fixed costs will not be materially affected if the product is discontinued. a. Prepare a differential analysis report, dated January 3,2006 , for the proposed discontinuance of Diet Kola. b. 1 Should Diet Kola be retained? Explain.