On the basis of the following data, the general manager of Featherweight Shoes Inc. decided...
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On the basis of the following data, the general manager of Featherweight Shoes Inc. decided to discontinue Childrens Shoes because it reduced income from operations by $17,000.
Featherweight Shoes Inc. Product-Line Income Statement For the Year Ended April 30, 20Y8 Men's Shoes Children's Shoes Women's Shoes Total 1 $235,000.00 $300,000.00 $500,000.00 $1,035,000.00 2 Sales 3Costs of goods sold: $220,000.00 Variable costs $130,000.00 $150,000.00 $500,000.00 4 41,000.00 120,000.00 Fixed costs 60,000.00 221,000.00 $171,000.00 $210,000.00 $340,000.00 $721,000.00 Total cost of goods sold 6 7 Gross profit $64,000.00 $90,000.00 $160,000.00 $314,000.00 Selling and administrative expenses: 8 Variable selling and admin. expenses $46,000.00 $45,000.00 $95,000.00 $186,000.00 9 Fixed selling and admin. expenses 35,000.00 20,000.00 80,000.00 25,000.00 10 $81,000.00 $65,000.00 $120,000.00 $266,000.00 Total selling and admin. expenses 11 $40,000.00 $(17,000.00) $25,000.00 $48,000.00 Income (loss) from operations 12 Required: What is the flaw in this decision, if it is assumed fixed costs would not be materially affected by the discontinuance? (Prepare the Differential Analvsis before respondina to the auestions.)
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