Chapter 25 Homework (Application) eBook 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 Total Sales $200,000 $300,000 $500,000 $1,080,000 Costs of goods sold: Variable costs $(135,000) Fixed costs Total cost of goods sold Gross profit $(150,000) (45,000) (60,000) (180,000) $(210,000) $90,000 $100,000 $(220,000) $(505,000) (120,000) (225,000) $340,000) $(730,000) $160,000 $350,000 Selling and administrative expenses Variable selling and admin. expenses Fixed selling and admin, expenses Total selling and admin. expenses Operating income (loss) $(100,000) $(45,000) (20,000) (30,000) $(130,000) $(65,000) $30,000) $25,000 195,000) $(240,000) (25,000) (75,000) $315,000) $(120,000) $40,000 $35,000 Prepare offerential analysis to determine the flaw in the general manager's decision, If an amount is zero, enter "0". 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 Differential Previor dition) eBook cross pronic $200,000 $70,000 $400,000 Selling and administrative expenses: Variable selling and admin, expenses Fixed selling and admin. expenses Total selling and admin, expenses Operating income (loss) $(100,000) $(45,000) (30,000) (20,000) $(130,000) $(65,000) $(30,000) $25,000 $(95,000) $(240,000) (25,000) (75,000) $(120,000) $(315,000) $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 "0". If required, use a minus sign to indicate a loss Differential Analysis Continue (Alt. 1) or Discontinue (Alt. 2) Children's Shoes Discontinue Children's Shoes Children's Shoes November 30 Continue Differential Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues Costs 280,000 Variable cost of goods sold -135,000 Variable selling and admin, expenses 450.000 Fixed costs Profit (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? The general manager has failed to identify the objective of the decision If the children's Shoes are discontinued, the company's loss would Check My Work