Decision to Discontinue a Product Assignment

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    Decision to Discontinue a Product Assignment

    Decision to Discontinue a Product 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. Featherweight Shoes Inc. Product-Line Income Statement For the Year Ended April 30, 20Y8 Children's Shoes Men's Shoes Women's Shoes Total Sales $235,000 $300,000 $500,000 $1,035,000 Costs of goods sold: Variable costs $130,000 $150,000 $220,000 $500,000 Fixed costs 41,000 60,000 120,000 221,000 Total cost of goods sold $171,000 $210,000 $340,000 $721,000 Gross profit $64,000 $90,000 $160,000 $314,000 Selling and administrative expenses: Variable selling and admin. expenses $46,000 $45,000 $95,000 $186,000 Fixed selling and admin. expenses 35,000 20,000 25,000 80,000 Total selling and admin. expenses $81,000 $65,000 $120,000 $266,000 Income (Loss) from operations $(17,000) $25,000 $40,000 $48,000 a. Prepare

    Decision to Discontinue a Product

    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.

    Featherweight Shoes Inc.
    Product-Line Income Statement
    For the Year Ended April 30, 20Y8
    Children's Shoes Men's Shoes Women's Shoes Total
    Sales $235,000 $300,000 $500,000 $1,035,000
    Costs of goods sold:
    Variable costs $130,000 $150,000 $220,000 $500,000
    Fixed costs 41,000 60,000 120,000 221,000
    Total cost of goods sold $171,000 $210,000 $340,000 $721,000
    Gross profit $64,000 $90,000 $160,000 $314,000
    Selling and administrative expenses:
    Variable selling and admin. expenses $46,000 $45,000 $95,000 $186,000
    Fixed selling and admin. expenses 35,000 20,000 25,000 80,000
    Total selling and admin. expenses $81,000 $65,000 $120,000 $266,000
    Income (Loss) from operations $(17,000) $25,000 $40,000 $48,000

    a. Prepare a differential analysis to determine the flaw in the general manager’s decision. If an amount is zero, enter “0”. Use a minus sign to indicate a loss.

    Differential Analysis
    Continue (Alternative 1) or Discontinue (Alternative 2) Children’s Shoes
    Continue Children's Shoes
    (Alternative 1)
    Discontinue Children's Shoes
    (Alternative 2)
    Differential Effect on Income
    (Alternative 2)
    Revenues $ $ $
    Costs:
    Variable cost of goods sold
    Variable selling and admin. expenses
    Fixed costs
    Income (Loss) $ $ $

    b. What is the flaw in the decision to discontinue Children’s Shoes, if it is assumed fixed costs would not be materially affected by the discontinuance?
    If the children’s Shoes are discontinued, the company's   would   by $.Get Custom Essay Writing today.