Decision to Discontinue a Product On the basis of the following data, the general manager of Foremost Footwear Inc. decided to discontinue Children's Shoes because it reduced income from operations by $10,000. What is the flaw in this decision if it is assumed that fixed costs would not be materially affected by the discontinuance? Sales Costs of goods sold: Variable costs Fixed costs Total cost of goods sold Fixed selling and admin. expenses Total selling and admin. expenses Foremost Footwear Inc. Product-Line Income Statement For the Year Ended April 30, 20Y7 Income (loss) from operations Children's Shoes $165,000 $105,000 32,000 Gross profit Selling and adminstrative expenses: Variable selling and admin. expenses $137,000 $28,000 $21,000 17,000 $38,000 $(10,000) Men's Shoes Women's Shoes $300,000 $500,000 $965,000 $150,000 $220,000 $475,000 60,000 120,000 212,000 $210,000 $340,000 $687,000 $90,000 $45,000 20,000 Total $25,000 $160,000 $278,000 $95,000 $161,000 25,000 62,000 $65,000 $120,000 $223,000 $40,000 55,000

Decision to Discontinue a Product On the basis of the following data, the general manager of Foremost Footwear Inc. decided to discontinue Children's Shoes because it reduced income from operations by $10,000. What is the flaw in this decision if it is assumed that fixed costs would not be materially affected by the discontinuance? Sales Costs of goods sold: Variable costs Fixed costs Total cost of goods sold Fixed selling and admin. expenses Total selling and admin. expenses Foremost Footwear Inc. Product-Line Income Statement For the Year Ended April 30, 20Y7 Income (loss) from operations Children's Shoes $165,000 $105,000 32,000 Gross profit Selling and adminstrative expenses: Variable selling and admin. expenses $137,000 $28,000 $21,000 17,000 $38,000 $(10,000) Men's Shoes Women's Shoes $300,000 $500,000 $965,000 $150,000 $220,000 $475,000 60,000 120,000 212,000 $210,000 $340,000 $687,000 $90,000 $45,000 20,000 Total $25,000 $160,000 $278,000 $95,000 $161,000 25,000 62,000 $65,000 $120,000 $223,000 $40,000 55,000

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter25: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 6E: Decision to discontinue a product On the basis of the following data, the general manager of Hawkeye...

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