Bundle: Accounting, Chapters 1-13, 26th + Working Papers, Chapters 1-17 For Warren/reeve/duchac's Accounting, 26th And Financial Accounting, 14th + ... For Warren/reeve/duchac's Accounting, 26th
26th Edition
ISBN: 9781337498159
Author: Carl Warren, Jim Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Question
Chapter 25, Problem 25.6EX
To determine
Differential Analysis: Differential analysis refers to the analysis of differential revenue that could be gained or differential cost that could be incurred from the available alternative options of business.
To Identify: The flaw in the decision of assuming that fixed costs would not be materially affected by discontinuation of the Children’s shoes.
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3.)
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 StatementFor 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…
- 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. What is the flaw
in this decision, if it is assumed fixed costs would not be materially affected by the discontinuance?
Hawkeye Shoes Inc.
Product-Line Income Statement
For the Year Ended November 30, 20Y8
Children's Shoes Men's Shoes Women's Shoes
$ 300,000
Total
Sales
$ 280,000
$ 500,000
$1,080,000
Costs of goods sold:
$ (505,000)
$(220,000)
(120,000)
$(340,000)
$ 160,000
Variable costs
$(135,000)
$(150,000)
Fixed costs
Total cost of goods sold
Gross profit
Selling and adminstrative expenses:
(45,000)
$(180,000)
$ 100,000
(60,000)
$(210,000)
$ 90,000
(225,000)
$ (730,000)
$ 350,000
$ (240,000)
(75,000)
$ (315,000)
$ 35,000
$ (45,000)
(20,000)
$ (95,000)
Variable selling and admin. expenses
Fixed selling and admin. expenses
Total selling and admin. expenses
Operating income (loss)
$(100,000)
(30,000)
(25,000)
$(130,000)…
Chapter 25 Solutions
Bundle: Accounting, Chapters 1-13, 26th + Working Papers, Chapters 1-17 For Warren/reeve/duchac's Accounting, 26th And Financial Accounting, 14th + ... For Warren/reeve/duchac's Accounting, 26th
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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 StatementFor 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…arrow_forwardDecision 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 cost $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.…arrow_forwardTop managers of Vermont Flooring are alarmed by their operating losses. They are considering dropping the laminate flooring product line. Company accountants have prepared the following analysis to help make this decision in the chart below: Total fixed costs will not change if the company stops selling laminate flooring. Requirements 1. Prepare an incremental analysis to show whether Vermont Flooring should discontinue the laminate flooring product line. Will discontinuing laminate flooring add $28,000 to operating income? Explain. 2. Assume that the company can avoid $32,000 of fixed expenses by discontinuing the laminate flooring product line (these costs are direct fixed costs of the laminate flooring product line). Prepare an incremental analysis to show whether the company should stop selling laminate flooring. 3. Now, assume that all of the fixed costs assigned to laminate flooring are direct fixed costs and can be avoided if the company stops selling laminate flooring. However,…arrow_forward
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