On the basis of the following data, the general manager of Flow Industries Inc. decided to discontinue
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On the basis of the following data, the general manager of Flow Industries Inc. decided to discontinue Half Moon because it reduced operating income by $32,500. What is the flaw in this decision?
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FLOW INDUSTRIES INC. Product-Line Income Statement Half Side Moon Triangle Angle Total Sales $ 200,000 $ 600,000 $ 550,000 $1,350,000 Costs of goods sold: $ (720,000) (350,000) $ (1,070,000) Variable costs $(120,000) $(310,000) $(290,000) Fixed costs (150,000) $(440,000) $ 110,000 (50,000) (150,000) $(460,000) $ 140,000 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 $(170,000) $ 30,000 280,000 $ (37,500) (25,000) $ (60,000) (50,000) $(110,000) $30,000 $ (50,000) (40,000) $ (90,000) $ 20,000 $ (147,500) (115,000) (262,500) $ (62,500) $ (32,500) Operating income (loss) 17,500
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