- 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

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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?
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