ecision 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? Foremost Footwear Inc. Product-Line Income Statement For the Year Ended April 30, 20Y7 Children's Shoes Men's Shoes Women's Shoes Total Sales $165,000 $300,000 $500,000 $965,000 Costs of goods sold: Variable costs $105,000 $150,000 $220,000 $475,000 Fixed costs 32,000 60,000 120,000 212,000 Total cost of goods sold $137,000 $210,000 $340,000 $687,000 Gross profit $28,000 $90,000 $160,000 $278,000 Selling and adminstrative expenses: Variable selling and admin. expenses $21,000 $45,000 $95,000 $161,000 Fixed selling and admin. expenses 17,000 20,000 25,000 62,000 Total selling and admin. expenses $38,000 $65,000 $120,000 $223,000 Income (loss) from operations $(10,000) $25,000 $40,000
ecision 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? Foremost Footwear Inc. Product-Line Income Statement For the Year Ended April 30, 20Y7 Children's Shoes Men's Shoes Women's Shoes Total Sales $165,000 $300,000 $500,000 $965,000 Costs of goods sold: Variable costs $105,000 $150,000 $220,000 $475,000 Fixed costs 32,000 60,000 120,000 212,000 Total cost of goods sold $137,000 $210,000 $340,000 $687,000 Gross profit $28,000 $90,000 $160,000 $278,000 Selling and adminstrative expenses: Variable selling and admin. expenses $21,000 $45,000 $95,000 $161,000 Fixed selling and admin. expenses 17,000 20,000 25,000 62,000 Total selling and admin. expenses $38,000 $65,000 $120,000 $223,000 Income (loss) from operations $(10,000) $25,000 $40,000
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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ecision 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?
| Foremost Footwear Inc. Product-Line Income Statement For the Year Ended April 30, 20Y7 |
||||||||||
| Children's Shoes | Men's Shoes | Women's Shoes | Total | |||||||
| Sales | $165,000 | $300,000 | $500,000 | $965,000 | ||||||
| Costs of goods sold: | ||||||||||
| Variable costs | $105,000 | $150,000 | $220,000 | $475,000 | ||||||
| Fixed costs | 32,000 | 60,000 | 120,000 | 212,000 | ||||||
| Total cost of goods sold | $137,000 | $210,000 | $340,000 | $687,000 | ||||||
| Gross profit | $28,000 | $90,000 | $160,000 | $278,000 | ||||||
| Selling and adminstrative expenses: | ||||||||||
| Variable selling and admin. expenses | $21,000 | $45,000 | $95,000 | $161,000 | ||||||
| Fixed selling and admin. expenses | 17,000 | 20,000 | 25,000 | 62,000 | ||||||
| Total selling and admin. expenses | $38,000 | $65,000 | $120,000 | $223,000 | ||||||
| Income (loss) from operations | $(10,000) | $25,000 | $40,000 | 55,000 |
If the Children Shoe's are discontinued, the company's would by $fill in the blank 3.
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