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 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.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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.

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