- 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) $ (30,000) $ (65,000) $ 25,000 $(120,000) $ 40,000

- 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) $ (30,000) $ (65,000) $ 25,000 $(120,000) $ 40,000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Below are departmental income statements for a guitar manufacturer. The company classifies advertising, rent, and utilities as indirect expenses. The manufacturer is considering eliminating its Electric Guitar department because it shows a loss. Departmental Income Statements For Year Ended December 31 Acoustic Sales $ 102,900 Electric $ 84,000 Cost of goods sold Gross profit Expenses Advertising Depreciation-Equipment Salaries Supplies used Rent Utilities Total expenses 44,975 47,550 57,925 36,450 4,985 4,320 10,080 8,540 20,100 17,800 2,010 1,780 7,095 5,950 2,995 2,640 47,265 41,030 Income (loss) $ 10,660 $ (4,580) 1. Prepare a departmental contribution to overhead report. 2. Based on contribution to overhead, should the electric guitar department be eliminated?
Differential Analysis for a Discontinued Product A condensed income statement by product line for Healthy Beverage Inc. indicated the following for Fruit Cola for the past year: Sales $237,100 Cost of goods sold 112,000 Gross profit $125,100 Operating expenses 143,000 Loss from operations $(17,900) It is estimated that 12% of the cost of goods sold represents fixed factory overhead costs and that 20% of the operating expenses are fixed. Because Fruit Cola is only one of many products, the fixed costs will not be materially affected if the product is discontinued. a. Prepare a differential analysis dated January 5 to determine whether Fruit Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". Use a minus sign to indicate a loss. Differential Analysis Continue Fruit Cola (Alt. 1) or Discontinue Fruit Cola (Alt. 2) January 5 Continue Fruit Cola (Alternative 1) Discontinue Fruit Cola (Alternative 2)…
Below are departmental income statements for a guitar manufacturer. The company classifies advertising, rent, and utilities as indirect expenses. The manufacturer is considering eliminating its Electric Guitar department because it shows a loss. Departmental Income Statements For Year Ended December 31 Acoustic Electric Sales $ 102,900 $ 83,300 Cost of goods sold 44,175 47,350 Gross profit 58,725 35,950 Expenses Advertising 4,995 4,270 Depreciation—Equipment 10,080 8,560 Salaries 19,800 17,200 Supplies used 2,000 1,700 Rent 7,055 6,030 Utilities 2,965 2,620 Total expenses 46,895 40,380 Income (loss) $ 11,830 $ (4,430) Prepare a departmental contribution to the overhead report. Based on contribution to overhead, should the electric guitar department be eliminated?
Perreth Drycleaners has capacity to clean up to 5,000 garments per month. Requirements 1. Complete the schedule below for the three volumes shown. 2. Why does the average cost per garment change? 3. Suppose the owner, David Perreth, erroneously uses the average cost per unit at full capacity to predict total costs at a volume of 2,000 garments. Would he overestimate or underestimate his total costs? By how much? Requirement 1. Complete the following schedule for the three volumes shown. (Round all unit costs to the nearest cent and all total costs to the nearest whole dollar.) 2,000 3,500 5,000 Garments Garments Garments Total variable costs Total fixed costs Total operating costs Variable cost per garment Fixed cost per garment Average cost per garment $ 1,750 2.00
Differential Analysis for a Discontinued Product A condensed income statement by product line for Lavonia Beverage Inc. indicated the following for Vim Cola for the past year: Sales Cost of goods sold $233,400 (111,000) Gross profit Operating expenses Operating loss $122,400 (143,000) $(20,600) It is estimated that 14% of the cost of goods sold represents fixed factory overhead costs and that 18% of the operating expenses are fixed. Because Vim Cola is only one of many products, the fixed costs will not be materially affected if the product is discontinued. a. Prepare a differential analysis dated November 2 to determine whether Vim Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Continue (Alt. 1) or Discontinue (Alt. 2) Vim Cola Line Item Description November 2 Continue Vim Cola Discontinue Vim Cola Differential Effects Revenues Costs: Variable cost of…
ABC Manufacturing produces metal lampposts. The company's income statements for the last two years are given below. The company has no beginning or ending inventories. Last year 60,000 This year 85,000 $2,040,000 Units sold Sales $1,440,000 Less cost of goods sold Gross margin Less operating expenses 785,000 1,060,000 655,000 980,000 237,000 312,000 Net income $418.000 $668.000 Using the high/low method, determine the company's total variable cost per unit. O $15.50 per unit O $12 per unit O $11.75 per unit O $14 per unit
Differential Analysis for a Discontinued Product A condensed income statement by product line for Crown Beverage Inc. indicated the following for Royal Cola for the past year: Sales $236,700 Cost of goods sold 111,000 Gross profit Operating expenses Loss from operations $125,700 144,000 $(18,300) It is estimated that 16% of the cost of goods sold represents fixed factory overhead costs and that 19% of the operating expenses are fixed. Since Royal Cola is only one of many products, the fixed costs will not be materially affected if the product is discontinued. a. Prepare a differential analysis, dated March 3, to determine whether Royal Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter zero "0". Use a minus sign to indicate a loss. Revenues Differential Analysis Continue Royal Cola (Alt. 1) or Discontinue Royal Cola (Alt. 2) January 21 Continue Royal Discontinue Royal Cola (Alternative 1) Cola (Alternative 2) 236,700 Differential…
Differential Analysis for a Discontinued Product A condensed income statement by product line for Lavonia Beverage Inc. indicated the following for Vim Cola for the past year: Sales $234,600 Cost of goods sold (111,000) Gross profit $123,600 (144,000) $(20,400) Operating expenses Operating loss It is estimated that 15% of the cost of goods sold represents fixed factory overhead costs and that 23% of the operating expenses are fixed. Because Vim Cola is only one of many products, the fixed costs will not be materially affected if the product is discontinued. a. Prepare a differential analysis dated November 2 to determine whether Viem Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Continue (Alt. 1) or Discontinue (Alt. 2) Vim Colo November 2 Line Item Description Revenues Costs: Variable cost of goods sold Variable operating expenses Fixed costs Profit…
Please do not give solution in image format
Differential Analysis for a Discontinued Product A condensed income statement by product line for British Beverage Inc. indicated the following for Royal Cola for the past year: Sales $233,800 Cost of goods sold 110,000 Gross profit $123,800 Operating expenses 143,000 Loss from operations $(19,200) It is estimated that 12% of the cost of goods sold represents fixed factory overhead costs and that 20% of the operating expenses are fixed. Since Royal Cola is only one of many products, the fixed costs will not be materially affected if the product is discontinued. a. Prepare a differential analysis, dated March 3, to determine whether Royal Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter zero "0". Use a minus sign to indicate a loss. Differential Analysis Continue Royal Cola (Alt. 1) or Discontinue Royal Cola (Alt. 2) January 21 Differential Effect Continue Royal Discontinue Royal on Income (Alternative 2) Cola (Alternative 1) Cola…
16. At the end of the year, a company finds that it has under-applied factory overhead by $1,000. What would be the most common accounting treatment in this case? Increase Assets by $1,000 on the Balance Sheet Increase Profit by $1,000 in the Income Statement Increase Liabilities by $1,000 on the Balance Sheet Decrease Cost of Goods Sold by $1,000 in the Income Statement Increase Cost of Goods Sold by $1,000 in the Income Statement.
Les Objets Volants (LOJ), S.A., of France, makes aircraft equipment. The company has been experiencing losses on its fuel pump product line for several years. The most recent quarterly income statement for the fuel pump product line follows: Sales Less: Variable expenses: LES OBJETS VOLANTS S.A. Income Statement-Fuel Pump For the Quarter Ended March 31 Variable manufacturing expenses Sales commissions Shipping Total variable expenses Contribution margin Less: Fixed expenses: Advertising Depreciation of equipment (no resale value) General factory overhead Salary of product-line manager Insurance on inventories Purchasing department expenses Total fixed expenses Net operating loss *Common costs allocated on the basis of machine-hours. *common costs allocated on the basis of sales dollars. Net advantage (disadvantage) of dropping the line € 320,000 66,000 14,000 Should the fuel pump product line be discontinued? 290,000 90.000 149,000* 38,000 18,000 65,000+ € 1,000,000 € 400,000 600,000…