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? Sales Costs of goods sold: Variable costs Fixed costs Total cost of goods sold Fixed selling and admin. expenses Total selling and admin. expenses Foremost Footwear Inc. Product-Line Income Statement For the Year Ended April 30, 20Y7 Income (loss) from operations Children's Shoes $165,000 $105,000 32,000 Gross profit Selling and adminstrative expenses: Variable selling and admin. expenses $137,000 $28,000 $21,000 17,000 $38,000 $(10,000) Men's Shoes Women's Shoes $300,000 $500,000 $965,000 $150,000 $220,000 $475,000 60,000 120,000 212,000 $210,000 $340,000 $687,000 $90,000 $45,000 20,000 Total $25,000 $160,000 $278,000 $95,000 $161,000 25,000 62,000 $65,000 $120,000 $223,000 $40,000 55,000
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? Sales Costs of goods sold: Variable costs Fixed costs Total cost of goods sold Fixed selling and admin. expenses Total selling and admin. expenses Foremost Footwear Inc. Product-Line Income Statement For the Year Ended April 30, 20Y7 Income (loss) from operations Children's Shoes $165,000 $105,000 32,000 Gross profit Selling and adminstrative expenses: Variable selling and admin. expenses $137,000 $28,000 $21,000 17,000 $38,000 $(10,000) Men's Shoes Women's Shoes $300,000 $500,000 $965,000 $150,000 $220,000 $475,000 60,000 120,000 212,000 $210,000 $340,000 $687,000 $90,000 $45,000 20,000 Total $25,000 $160,000 $278,000 $95,000 $161,000 25,000 62,000 $65,000 $120,000 $223,000 $40,000 55,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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3.)
Transcribed Image Text:If the Children Shoe's are discontinued, the company's income
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Transcribed Image Text: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?
Sales
Costs of goods sold:
Variable costs
Fixed costs
Total cost of goods
sold
Fixed selling and
admin. expenses
Total selling and
admin. expenses
Foremost Footwear Inc.
Product-Line Income Statement
For the Year Ended April 30, 20Y7
Income (loss) from
operations.
Children's
Shoes
$165,000
$105,000
32,000
Gross profit
Selling and adminstrative expenses:
Variable selling and
admin. expenses
$137,000
$28,000
$21,000
17,000
$38,000
$(10,000)
Men's
Shoes
$300,000
$150,000
60,000
$45,000
20,000
Women's
Shoes
$500,000 $965,000
$210,000 $340,000 $687,000
$90,000 $160,000 $278,000
$25,000
Total
$220,000 $475,000
120,000 212,000
$95,000 $161,000
25,000 62,000
$65,000 $120,000 $223,000
$40,000
55,000
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