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 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 operations $(10,000) $25,000 $40,000 55,000 If the Children Shoe's are discontinued, the company's would by $fill in the blank 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 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 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 operations $(10,000) $25,000 $40,000 55,000 If the Children Shoe's are discontinued, the company's would by $fill in the blank 3.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 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 operations | $(10,000) | $25,000 | $40,000 | 55,000 |
If the Children Shoe's are discontinued, the company's would by $fill in the blank 3.
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