Reference no: EM131299837
Inc. decided to discontinue Children's Shoes because it reduced income from operations by $17,000. What is the flaw in this decision, if it is assumed fixed costs would not be materially affected by the discontinuance?
Featherweight Shoes Inc.
Children's Shoes Men's Shoes Women's Shoes Total Sales $235,000 $300,000 $500,000 $1,035,000
Costs of goods sold: Variable costs $130,000 $150,000 $220,000 $500,000
Fixed costs 41,000 60,000 120,000 $221,000
Total cost of goods sold $171,000 $210,000 $340,000 $721,000
Gross profit $64,000 $90,000 $160,000 $314,000
Selling and adminstrative expenses: Variable selling and admin. expenses 46,000 45,000 95,000 $186,000
Fixed selling and admin. expenses 35,000 20,000 25,000 $80,000
Total selling and admin. expenses $81,000 $65,000 $120,000 $266,000
Income (loss) from operations ($17,000) 25,000 40,000 $48,000
Product-Line Income Statement For the Year Ended April 30, 2016
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