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Decision to Discontinue a Product On the basis of the following data, the general manager of Hawkeye Shoes Inc. decided to discontinue Children's Shoes because it reduced operating income by $30,000. Hawkeye Shoes Inc. Product-Line Income Statement For the Year Ended November 30, 20Y8 Children's Shoes Men's Shoes Women's Shoes Total Sales $280,000 $300,000 $500,000 $1,080,000 Costs of goods sold: Variable costs $(135,000) $(150,000) $(220,000) $(505,000) Fixed costs (45,000) (60,000) (120,000) (225,000) Total cost of goods sold $(180,000) $(210,000) $(340,000) $(730,000) Gross profit $100,000 $90,000 $160,000 $350,000 Selling and administrative expenses: Variable selling and admin. expenses $(100,000) $(45,000) $(95,000) $(240,000) Fixed selling and admin. expenses (30,000) (20,000) (25,000) (75,000) Total selling and admin. expenses $(130,000) $(65,000) $(120,000) $(315,000) Operating income (loss) $(30,000) $25,000 $40,000 $35,000 a. Prepare a differential analysis to determine the flaw in the general manager's decision. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Continue (Alt. 1) or Discontinue (Alt. 2) Children's Shoes November 30 Continue Discontinue Differential Children's Shoes Children's Shoes Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues Costs: Variable cost of goods sold Variable selling and admin. expenses Fixed costs Profit (Loss) 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 loss would by

Decision to Discontinue a Product On the basis of the following data, the general manager of Hawkeye Shoes Inc. decided to discontinue Children's Shoes because it reduced operating income by $30,000. Hawkeye Shoes Inc. Product-Line Income Statement For the Year Ended November 30, 20Y8 Children's Shoes Men's Shoes Women's Shoes Total Sales $280,000 $300,000 $500,000 $1,080,000 Costs of goods sold: Variable costs $(135,000) $(150,000) $(220,000) $(505,000) Fixed costs (45,000) (60,000) (120,000) (225,000) Total cost of goods sold $(180,000) $(210,000) $(340,000) $(730,000) Gross profit $100,000 $90,000 $160,000 $350,000 Selling and administrative expenses: Variable selling and admin. expenses $(100,000) $(45,000) $(95,000) $(240,000) Fixed selling and admin. expenses (30,000) (20,000) (25,000) (75,000) Total selling and admin. expenses $(130,000) $(65,000) $(120,000) $(315,000) Operating income (loss) $(30,000) $25,000 $40,000 $35,000 a. Prepare a differential analysis to determine the flaw in the general manager's decision. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Continue (Alt. 1) or Discontinue (Alt. 2) Children's Shoes November 30 Continue Discontinue Differential Children's Shoes Children's Shoes Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues Costs: Variable cost of goods sold Variable selling and admin. expenses Fixed costs Profit (Loss) 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 loss would by

Managerial Accounting
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter11: Differential Analysis And Product Pricing
Section: Chapter Questions
Problem 6E
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Decision to Discontinue a Product On the basis of the following data, the general manager of Hawkeye Shoes Inc. decided to discontinue Children's Shoes because it reduced operating income by $30,000. Hawkeye Shoes Inc. Product-Line Income Statement For the Year Ended November 30, 20Y8 Children's Shoes Men's Shoes Women's Shoes Total Sales $280,000 $300,000 $500,000 $1,080,000 Costs of goods sold: Variable costs $(135,000) $(150,000) $(220,000) $(505,000) Fixed costs (45,000) (60,000) (120,000) (225,000) Total cost of goods sold $(180,000) $(210,000) $(340,000) $(730,000) Gross profit $100,000 $90,000 $160,000 $350,000 Selling and administrative expenses: Variable selling and admin. expenses $(100,000) $(45,000) $(95,000) $(240,000) Fixed selling and admin. expenses (30,000) (20,000) (25,000) (75,000) Total selling and admin. expenses $(130,000) $(65,000) $(120,000) $(315,000) Operating income (loss) $(30,000) $25,000 $40,000 $35,000 a. Prepare a differential analysis to determine the flaw in the general manager's decision. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Continue (Alt. 1) or Discontinue (Alt. 2) Children's Shoes November 30 Continue Discontinue Differential Children's Shoes Children's Shoes Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues Costs: Variable cost of goods sold Variable selling and admin. expenses Fixed costs Profit (Loss) 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 loss would by
Transcribed Image Text:Decision to Discontinue a Product On the basis of the following data, the general manager of Hawkeye Shoes Inc. decided to discontinue Children's Shoes because it reduced operating income by $30,000. Hawkeye Shoes Inc. Product-Line Income Statement For the Year Ended November 30, 20Y8 Children's Shoes Men's Shoes Women's Shoes Total Sales $280,000 $300,000 $500,000 $1,080,000 Costs of goods sold: Variable costs $(135,000) $(150,000) $(220,000) $(505,000) Fixed costs (45,000) (60,000) (120,000) (225,000) Total cost of goods sold $(180,000) $(210,000) $(340,000) $(730,000) Gross profit $100,000 $90,000 $160,000 $350,000 Selling and administrative expenses: Variable selling and admin. expenses $(100,000) $(45,000) $(95,000) $(240,000) Fixed selling and admin. expenses (30,000) (20,000) (25,000) (75,000) Total selling and admin. expenses $(130,000) $(65,000) $(120,000) $(315,000) Operating income (loss) $(30,000) $25,000 $40,000 $35,000 a. Prepare a differential analysis to determine the flaw in the general manager's decision. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Continue (Alt. 1) or Discontinue (Alt. 2) Children's Shoes November 30 Continue Discontinue Differential Children's Shoes Children's Shoes Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues Costs: Variable cost of goods sold Variable selling and admin. expenses Fixed costs Profit (Loss) 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 loss would by
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