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, 20Y8 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 $(135,000) $(150,000) (60,000) (45,000) $(180,000) $100,000 $(220,000) (120,000) $(340,000) $160,000 5(505,000) (225,000) $(730,000) $350,000 $(210,000) $90,000 Fixed costs 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 $(100,000) (30,000) $(130,000) $(30,000) $(45,000) (20,000) $(65,000) $25,000 $195,000) (25,000) $(120,000) $40,000 $(240,000) (75,000) 5(315,000) $35,000 Operating income (loss) Operating income (loss) $(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 Profit (Loss) 0m Feedback Check My Work For continue and discontinue alternatives subtract the costs from the revenue. Separate variable from fixed costs. Determine the differential effect on Income of the revenues, costs, and income (loss) by subtracting alternative 1 from alternative 2. 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 is not focusing on the differential revenues and costs. If the children's Shoes are discontinued, the company's loss would increase by Feedback Check My Work For continue and discontinue alternatives subtract the costs from the revenue. Separate variable from fixed costs. Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 1 from alternative 2 Feedback Check My Work Partially correct