On the basis of the following data, the general manager of Featherweight Shoes I

Question

On the basis of the following data, the general manager of Featherweight Shoes Inc. decided to discontinue Children's Shoes because it reduced income from operations by $17,000. Featherweight Shoes Inc. Product-Line Income Statement For the Year Ended April 30, 20Y8 Children's ShoesMen's Shoes Women's Shoes Total 2 Sales $235,000.00 $300,000.00 $500,000.00 $1,035,000.00 3 Costs of goods sold: $130,000.00 41,000.00 $171,000.00 $64,000.00 $150,000.00 60,000.00 $210,000.00 $90,000.00 $220,000.00 120,000.00 $340,000.00 $160,000.00 $500,000.00 221,000.00 $721,000.00 $314,000.00 Variable costs Fixed costs 6 Total cost of goods sold 7 Gross profit Selling and administrative expenses: 9 Variable selling and admin. expenses Fixed seling and admin. expenses 11Total selling and admin. expenses $46,000.00 35,000.00 $81,000.00 17,000.0 $45,000.00 20,000.00 $65,000.00 $95,000.00 25,000.00 $120,000.00 $186,000.00 80,000.00 $266,000.00 12 Income (loss)from

Explanation / Answer

Differential Analysis Continue or Discontinue the Children Shoes April 30,2016 Particular Alternative-1 Alternative-2 Differential Effect on Income Continue Discontinue (Alternative-2) Sales $235,000 -$235,000 Less: Variable Cost of Goods Sold $130,000 -$130,000 Less: Fixed Cost of Goods Sold $41,000 $41,000 $0 Less: Variable Selling & Admin Expense $46,000 -$46,000 Less: Fixed Selling & Admin Expense $35,000 $35,000 $0 Opertaing Income/(Loss) -$17,000 -$76,000 -$59,000 Hence, the Children's Shoes should not be discontinued otherwise it would lead to an Additional loss of $59000

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