4. Decision to Discontinue a product

Decision to Discontinue a Product 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. Hawkeye Shoes Inc. Product-Line Income Statement For the Year Ended November 30, 2018 Children's Shoes Men's Shoes Women's Shoes $280,000 $300,000 $500,000 Total Sales $1,080,000 Costs of goods sold: Variable costs $(220,000) $(135,000) (45,000) $(180,000) $(505,000) (225,000) Fixed costs (120,000) $(150,000) (60,000) $(210,000) $90,000 $(340,000) $(730,000) $350,000 $100,000 $160,000 Total cost of goods sold Gross profit Selling and administrative expenses: Variable selling and admin, expenses Fixed selling and admin. expenses Total selling and admin. expenses $(45,000) (20,000) $(95,000) (25,000) $(100,000) (30,000) $(130,000) $(30,000) $(240,000) (75,000) $(315,000) $35,000 $(120,000 $(65,000) $25,000 $40,000 Operating Income (loss) Operating income (los) $(30,000) $25,000 $40,000 $35,000 . a. Prepare a differential analysis to determine the flaw in the general manager's decision. If an amount is zero, enter "o". If required, use a minus sign to indicate a loss. Differential Analysis Continue (Alt. 1) or Discontinue (Alt. 2) Children's Shoes November 30 Continue Discontinue Children's Shoes Children's Shoes (Alternative 1) (Alternative 2) Differential Effects (Alternative 2) Revenues Costs: Variable cost of goods sold Variable selling and admin, expenses Fixed costs 3 Profit (Loss) b. What is the flaw in the decision to discontinue Children's Shoes, if it is a humed fixed costs would not be materially attected by the discontinwance? by : The general manager is not focusing on the differential revenues and costs The general manager uses only fixed costs to make the decision The general manager las failed to identify the objective of the decision Differential Analysis Continue (Alt. 1) or Discontinue (Alt. 2) Children's Shoes November 30 Continue Discontinue Children's Shoes Children's Shoes (Alternative 1) (Alternative 2) Differential Effects (Alternative 2) Revenues Costs: Variable cost of goods sold Variable selling and admin. expenses Fixed costs Profit (L065) 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? by If the children's Shoes are discontinued, the company's loss would increase decrease had modem Check My Work uses romaining