Decision to Discontinue a Product
On the basis of the following data, the general manager of Featherweight Shoes Inc. decided to discontinue Children's Shoes because it reduced income from operations by $17,000.
|Featherweight Shoes Inc.
Product-Line Income Statement
For the Year Ended April 30, 20Y8
|Children's Shoes||Men's Shoes||Women's Shoes||Total|
|Costs of goods sold:|
|Total cost of goods sold||$171,000||$210,000||$340,000||$721,000|
|Selling and administrative expenses:|
|Variable selling and admin. expenses||$46,000||$45,000||$95,000||$186,000|
|Fixed selling and admin. expenses||35,000||20,000||25,000||80,000|
|Total selling and admin. expenses||$81,000||$65,000||$120,000||$266,000|
|Income (Loss) from operations||$(17,000)||$25,000||$40,000||$48,000|
a. Prepare a differential analysis to determine the flaw in the general manager’s decision. If an amount is zero, enter “0”. Use a minus sign to indicate a loss.
Decision to Discontinue a Product Assignment
|Continue (Alternative 1) or Discontinue (Alternative 2) Children’s Shoes|
|Continue Children's Shoes
|Discontinue Children's Shoes
|Differential Effect on Income
|Variable cost of goods sold|
|Variable selling and admin. expenses|
b. What is the flaw in the decision to discontinue Children’s Shoes, if it is assumed fixed costs would not be materially affected by the discontinuance?
If the children’s Shoes are discontinued, the company's would by $.
Decision to Discontinue a Product Assignment
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