On the basis of the following data, the general manager of Featherweight Shoes I
ID: 2533983 • Letter: O
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
1
Children’s Shoes
Men’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:
4
Variable costs
$130,000.00
$150,000.00
$220,000.00
$500,000.00
5
Fixed costs
41,000.00
60,000.00
120,000.00
221,000.00
6
Total cost of goods sold
$171,000.00
$210,000.00
$340,000.00
$721,000.00
7
Gross profit
$64,000.00
$90,000.00
$160,000.00
$314,000.00
8
Selling and administrative expenses:
9
Variable selling and admin. expenses
$46,000.00
$45,000.00
$95,000.00
$186,000.00
10
Fixed selling and admin. expenses
35,000.00
20,000.00
25,000.00
80,000.00
11
Total selling and admin. expenses
$81,000.00
$65,000.00
$120,000.00
$266,000.00
12
Income (loss) from operations
$(17,000.00)
$25,000.00
$40,000.00
$48,000.00
Prepare a differential analysis to determine the flaw in the general manager’s 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.
Question not attempted.
Score: 0/89
Differential Analysis
Continue (Alternative 1) or Discontinue (Alternative 2) Children’s Shoes
1
Continue Children’s Shoes
Discontinue Children’s Shoes
Differential Effect on Income
2
(Alternative 1)
(Alternative 2)
(Alternative 2)
3
4
5
6
7
8
Points:
1 / 1
If the Children’s Shoes are discontinued, the company'sincome would decrease by:
Fremont Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $81 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 60% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows:
If Fremont Computer Company manufactures the carrying cases, fixed factory overhead costs will not increase and variable factory overhead costs associated with the cases are expected to be 10% of the direct labor costs.
On the basis of the data presented, would it be advisable to make the carrying cases or to continue buying them? Explain.
Fremont Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $81 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 60% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows:
If Fremont Computer Company manufactures the carrying cases, fixed factory overhead costs will not increase and variable factory overhead costs associated with the cases are expected to be 10% of the direct labor costs.
X
Labels and Amount Descriptions
X
Differential Analysis
Shaded cells have feedback.
a. Prepare a differential analysis dated September 30 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. 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.
Question not attempted.
Score: 0/125
Differential Analysis
Make (Alternative 1) or Buy (Alternative 2) Carrying Case
September 30
1
Make Carrying Case
Buy Carrying Case
Differential Effect on Income
2
(Alternative 1)
(Alternative 2)
(Alternative 2)
Featherweight Shoes Inc.
Product-Line Income Statement
For the Year Ended April 30, 20Y8
Explanation / Answer
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Question-1 Continue Childred Shoes Discontinue Childred Shoes Differential effect on income Sale 235000 0 -235000 Cost of Goods Sold: Variable Cost -130000 0 130000 Fixed Cost (Fixed cost will incure fully even if discontinued) -41000 -41000 0 Total Cost of goods sold -171000 -41000 130000 Gross Profit 64000 -41000 -105000 Selling and administrative expense: Variable Selling and administrative expense -46000 0 46000 Fixed Selling and administrative expense -35000 -35000 0 Total Selling and administrative expense -81000 -35000 46000 Income/(loss) from operations -17000 -76000 -59000 If discontinued, income will decrease by 59000. Flaw with management decision: Management uses Fixed cost to make decision Question-2a Make Carrying Case Buy Carrying Case Differential Effect Purchase Price -81 -81 Direct Material -51 51 Direct Labor -20 20 Variable Overhead (20*10%) -2 2 Fixed Overhead 20*(60-10)% -10 -10 0 Income/(Loss) -83 -91 -8 Question-2b Should make the cases as cost is lower by $8Related Questions
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