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. Labels Cash flows from investing activities Costs Amount Descriptions Fixed costs Gain on sale of investments Income (loss) Loss on sale of investments Revenues Total costs Variable cost of goods sold Variable selling and administrative expenses Featherweight Shoes Inc.Product-Line Income StatementFor the Year Ended April 30, 20Y81Children's ShoesMen's ShoesWomen's ShoesTotal2 Sales$235,000.00$300,000.00$500,000.00$1,035,000.003 Costs of goods sold:Variable costs$130,000.00$150,000.00$220,000.00$500,000.004Fixed costs41,000.0060,000.00120,000.00221,000.0056Total cost of goods sold$171,000.00$210,000.00$340,000.00$721,000.007 Gross profit$64,000.00$90,000.00$160,000.00$314,000.008 Selling and administrative expenses:Variable selling and admin. expenses$46,000.00$45,000.00$95,000.00$186,000.0010Fixed selling and admin. expenses35,000.0020,000.0025,000.0080,000.0011Total selling and admin. expenses$81,000.00$65,000.00$120,000.00$266,000.0012 Income (loss) from operations$(17,000.00)$25,000.00$40,000.00$48,000.00Required:What is the flaw in this decision, if it is assumed fixed costs would not be materially affected by the discontinuance? (Prepare the DifferentialAnalysis before responding to the questions.) Prepare a differential analysis to determine the flaw in the general manager's decision. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must entersubtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.Differential AnalysisContinue (Alternative 1) or Discontinue (Alternative 2) Children's ShoesContinueDiscontinueDifferential Effect1Children's ShoesChildren's Shoeson Income(Alternative 1)(Alternative 2)(Alternative 2)34 (Label)56

Differential analysis is the analysis made by considering two alternative course of action to earn…

Prepare a differential analysis to determine the flaw in the general manager's decision. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon () will automatically appear if required. Differential Analysis Continue (Alternative 1) or Discontinue (Alternative 2) Children's Shoes Continue Discontinue Differential Effect Children's Shoes Children's Shoes on Income 2 (Alternative 1) (Alternative 2) (Alternative 2) 4 (Label) 5

Prepare a differential analysis to determine the flaw in the general manager's decision. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon () will automatically appear if required. Differential Analysis Continue (Alternative 1) or Discontinue (Alternative 2) Children's Shoes Continue Discontinue Differential Effect Children's Shoes Children's Shoes on Income 2 (Alternative 1) (Alternative 2) (Alternative 2) 4 (Label) 5

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter2: Basic Managerial Accounting Concepts

Section: Chapter Questions

Problem 4MCQ

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Labels
Cash flows from investing activities
Costs
Amount Descriptions
Fixed costs
Gain on sale of investments
Income (loss)
Loss on sale of investments
Revenues
Total costs
Variable cost of goods sold
Variable selling and administrative expenses