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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? 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 administrative 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

BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

Solutions

Chapter
Section
Chapter 25, Problem 25.6EX
Textbook Problem

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?

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 administrative 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

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Chapter 25 Solutions

Accounting
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