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Decision to Discontinue a Product On the basis of the following data, the general manager of Foremost Footwear Inc. decided to discontinue Children's Shoes because
Decision to Discontinue a Product On the basis of the following data, the general manager of Foremost Footwear Inc. decided to discontinue Children's Shoes because it reduced income from operations by $10,000. What is the flaw in this decision if it is assumed that fixed costs would not be materially affected by the discontinuance? Product-Line Income Statement For the Year Ended April 30, 20Y7 Children's Men's Women's Shoes Total Shoes Shoes Sales $165,000 $300,000 $500,000 $965,000 Costs of goods sold variable costs Fixed costs Total cost of goods sold 5105,000 $150,000 $220,000 $475,000 60,000 120,000 212,000 $137,000 $210,000 $340,000 $687,000 $28,000 $90,000 $160,000 $278,000 32,000 Gross profit Selling and adminstrative expenses Variable selling and admin. expenses Fixed selling and admin. expenses Total selling and admin. expenses 21,000 $45,000 $95,000 $161,000 17,000 20,000 25,000 62,000 $38,000 $65,000 $120,000 $223,000 Income (loss) from operations $(10,000) $25,000 40,000 55,000 If the Children Shoe's are discontinued, the company's income would decrease by
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