Decision to Discontinue a Product On the basis of the following data, the general manager of Featherweight Shoes Inc. decided to discontinue Children's Shoes because it reduced income from operations by $17,000. Featherweight Shoes Inc. Product-Line Income Statement For the Year Ended April 30, 20Y8 Children's Shoes Men's Shoes Women's Shoes Total Sales $235,000 $300,000 $500,000 $1,035,000 Costs of goods sold: Variable costs $130,000 $150,000 $220,000 $500,000 Fixed costs 41,000 60,000 120,000 221,000 Total cost of goods sold $171,000 $210,000 $340,000 $721,000 Gross profit $64,000 $90,000 $160,000 $314,000 Selling and administrative expenses: Variable selling and admin. expenses $46,000 $45,000 $95,000 $186,000 Fixed selling and admin. expenses 35,000 20,000 25,000 80,000 Total selling and admin. expenses $81,000 $65,000 $120,000 $266,000 Income (Loss) from operations $(17,000) $25,000 $40,000 $48,000 a. Prepare a differential analysis to determine the flaw in the general manager’s decision. If an amount is zero, enter "0". Use a minus sign to indicate a loss. Differential Analysis Continue (Alternative 1) or Discontinue (Alternative 2) Children’s Shoes Continue Children's Shoes (Alternative 1) Discontinue Children's Shoes (Alternative 2) Differential Effect on Income (Alternative 2) Revenues $fill in the blank 3263a4fe1072035_1 $fill in the blank 3263a4fe1072035_2 $fill in the blank 3263a4fe1072035_3 Costs: Variable cost of goods sold fill in the blank 3263a4fe1072035_4 fill in the blank 3263a4fe1072035_5 fill in the blank 3263a4fe1072035_6 Variable selling and admin. expenses fill in the blank 3263a4fe1072035_7 fill in the blank 3263a4fe1072035_8 fill in the blank 3263a4fe1072035_9 Fixed costs fill in the blank 3263a4fe1072035_10 fill in the blank 3263a4fe1072035_11 fill in the blank 3263a4fe1072035_12 Income (Loss) $fill in the blank 3263a4fe1072035_13 $fill in the blank 3263a4fe1072035_14 $fill in the blank 3263a4fe1072035_15 Feedback For continue and discontinue alternatives subtract the costs from the revenue. Separate variable from fixed costs. Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 2 from alternative 1. Learning Objective 1. 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? The general manager is not focusing on the differential revenues and costs. If the children’s Shoes are discontinued, the company's income would decrease by $fill in the blank 848c9900a06c000_4.
Decision to Discontinue a Product
On the basis of the following data, the general manager of Featherweight Shoes Inc. decided to discontinue Children's Shoes because it reduced income from operations by $17,000.
Featherweight Shoes Inc. Product-Line Income Statement For the Year Ended April 30, 20Y8 |
||||||||||
Children's Shoes | Men's Shoes | Women's Shoes | Total | |||||||
Sales | $235,000 | $300,000 | $500,000 | $1,035,000 | ||||||
Costs of goods sold: | ||||||||||
Variable costs | $130,000 | $150,000 | $220,000 | $500,000 | ||||||
Fixed costs | 41,000 | 60,000 | 120,000 | 221,000 | ||||||
Total cost of goods sold | $171,000 | $210,000 | $340,000 | $721,000 | ||||||
Gross profit | $64,000 | $90,000 | $160,000 | $314,000 | ||||||
Selling and administrative expenses: | ||||||||||
Variable selling and admin. expenses | $46,000 | $45,000 | $95,000 | $186,000 | ||||||
Fixed selling and admin. expenses | 35,000 | 20,000 | 25,000 | 80,000 | ||||||
Total selling and admin. expenses | $81,000 | $65,000 | $120,000 | $266,000 | ||||||
Income (Loss) from operations | $(17,000) | $25,000 | $40,000 | $48,000 |
a. Prepare a differential analysis to determine the flaw in the general manager’s decision. If an amount is zero, enter "0". Use a minus sign to indicate a loss.
Differential Analysis | |||
Continue (Alternative 1) or Discontinue (Alternative 2) Children’s Shoes | |||
Continue Children's Shoes (Alternative 1) |
Discontinue Children's Shoes (Alternative 2) |
Differential Effect on Income (Alternative 2) |
|
Revenues | $fill in the blank 3263a4fe1072035_1 | $fill in the blank 3263a4fe1072035_2 | $fill in the blank 3263a4fe1072035_3 |
Costs: | |||
Variable cost of goods sold | fill in the blank 3263a4fe1072035_4 | fill in the blank 3263a4fe1072035_5 | fill in the blank 3263a4fe1072035_6 |
Variable selling and admin. expenses | fill in the blank 3263a4fe1072035_7 | fill in the blank 3263a4fe1072035_8 | fill in the blank 3263a4fe1072035_9 |
Fixed costs | fill in the blank 3263a4fe1072035_10 | fill in the blank 3263a4fe1072035_11 | fill in the blank 3263a4fe1072035_12 |
Income (Loss) | $fill in the blank 3263a4fe1072035_13 | $fill in the blank 3263a4fe1072035_14 | $fill in the blank 3263a4fe1072035_15 |
For continue and discontinue alternatives subtract the costs from the revenue. Separate variable from fixed costs. Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 2 from alternative 1.
Learning Objective 1.
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?
The general manager is not focusing on the differential revenues and costs.
If the children’s Shoes are discontinued, the company's income would decrease by $fill in the blank 848c9900a06c000_4.
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