Decision to Discontinue a Product

On the basis of the following data, the general manager of Hawkeye Shoes Inc. decided to discontinue Childrens 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			Total
Sales		$280,000			$300,000			$500,000		$1,080,000
Costs of goods sold:
Variable costs	$(135,000)	$(150,000)	$(220,000)	$(505,000)
Fixed costs	(45,000)	(60,000)	(120,000)	(225,000)
Total cost of goods sold	$(180,000)	$(210,000)	$(340,000)	$(730,000)
Gross profit	$100,000	$90,000	$160,000	$350,000
Selling and administrative expenses:
Variable selling and admin. expenses	$(100,000)	$(45,000)	$(95,000)	$(240,000)
Fixed selling and admin. expenses	(30,000)	(20,000)	(25,000)	(75,000)
Total selling and admin. expenses	$(130,000)	$(65,000)	$(120,000)	$(315,000)
Operating income (loss)	$(30,000)	$25,000	$40,000	$35,000

a. Prepare a differential analysis to determine the flaw in the general managers 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) Childrens Shoes
November 30
	Continue Children's Shoes (Alternative 1)	Discontinue Children's Shoes (Alternative 2)	Differential Effects (Alternative 2)
Revenues	$fill in the blank 4862a2f9bfa506e_1	$fill in the blank 4862a2f9bfa506e_2	$fill in the blank 4862a2f9bfa506e_3
Costs:
Variable cost of goods sold	fill in the blank 4862a2f9bfa506e_4	fill in the blank 4862a2f9bfa506e_5	fill in the blank 4862a2f9bfa506e_6
Variable selling and admin. expenses	fill in the blank 4862a2f9bfa506e_7	fill in the blank 4862a2f9bfa506e_8	fill in the blank 4862a2f9bfa506e_9
Fixed costs	fill in the blank 4862a2f9bfa506e_10	fill in the blank 4862a2f9bfa506e_11	fill in the blank 4862a2f9bfa506e_12
Profit (Loss)	$fill in the blank 4862a2f9bfa506e_13	$fill in the blank 4862a2f9bfa506e_14	$fill in the blank 4862a2f9bfa506e_15

b. What is the flaw in the decision to discontinue Childrens 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 childrens Shoes are discontinued, the company's loss would increase by $fill in the blank 5e0639fbcfdf02d_3.