On the basis of the following data, the general manager of Foremost Footwear Inc. decided to discontinue Childrens 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? (Prepare the Differential Analysis before responding to the questions.)

Foremost Footwear Inc.

Product-Line Income Statement

For the Year Ended April 30, 20Y7

1		Childrens Shoes	Mens Shoes	Womens Shoes	Total
2	Sales	$165,000.00	$300,000.00	$500,000.00	$965,000.00
3	Costs of goods sold:
4	Variable costs	$105,000.00	$150,000.00	$220,000.00	$475,000.00
5	Fixed costs	32,000.00	60,000.00	120,000.00	212,000.00
6	Total cost of goods sold	$137,000.00	$210,000.00	$340,000.00	$687,000.00
7	Gross profit	$28,000.00	$90,000.00	$160,000.00	$278,000.00
8	Selling and adminstrative expenses:
9	Variable selling and admin. expenses	$21,000.00	$45,000.00	$95,000.00	$161,000.00
10	Fixed selling and admin. expenses	17,000.00	20,000.00	25,000.00	62,000.00
11	Total selling and admin. expenses	$38,000.00	$65,000.00	$120,000.00	$223,000.00
12	Income (loss) from operations	$(10,000.00)	$25,000.00	$40,000.00	$55,000.00

Labels and Amount Descriptions

Labels
Cash flows from investing activities
Costs
Amount Descriptions
Fixed costs
Gain on sale of investments
Income (loss)
Loss on sale of investments
Revenues
Total costs
Variable cost of goods sold
Variable selling and administrative expenses

Differential Analysis

Shaded cells have feedback.

Prepare a differential analysis to determine the flaw in the general managers decision. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.

Score: 62/89

Differential Analysis

Continue (Alternative 1) or Discontinue (Alternative 2) Childrens Shoes

April 30, 20Y7

1		Continue Childrens Shoes	Discontinue Childrens Shoes	Differential Effect on Income
2		(Alternative 1)	(Alternative 2)	(Alternative 2)
3
4
5
6
7
8