On the basis of the following data, the general manager of Hawkeye Shoes Inc. decided to discontinue
Question:
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?
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Hawkeye Shoes Inc. Product-Line Income Statement For the Year Ended November 30, 20Y8 Children's Shoes Men's Shoes Women's Shoes Total $ 280,000 $ 300,000 $ 500,000 Sales $1,080,000 Costs of goods sold: $ (505,000) $(135,000) Variable costs $(150,000) $(220,000) (60,000) Fixed costs (45,000) $(180,000) (120,000) (225,000) Total cost of goods sold Gross profit Selling and adminstrative expenses: Variable selling and admin. expenses Fixed selling and admin. expenses Total selling and admin. expenses Operating income (loss) $ (730,000) $ 350,000 $(340,000) $(210,000) $ 100,000 $ 90,000 $ 160,000 $ (45,000) $ (95,000) $ (240,000) $(100,000) (20,000) $ (65,000) $ 25,000 (30,000) $(130,000) $ (30,000) (25,000) (75,000) $ (315,000) $ 35,000 $(120,000) $ 40,000
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The flaw in the decision is the failure to focus on the differential ...View the full answer
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Related Book For
Forensic And Investigative Accounting
ISBN: 9780808056300
10th Edition
Authors: G. Stevenson Smith D. Larry Crumbley, Edmund D. Fenton
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