On the basis of the following data, the general manager of Feet to Go Inc. decided to discontinue Children’s Shoes because it reduced income from operations by $26,000. What is the flaw in this decision?
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Sole Mates Inc. |
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Product Line Income Statement |
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For the Year Ended August 31, 2008 |
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Children’s |
Men’s |
Women’s |
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Shoes |
Shoes |
Shoes |
Total |
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Sales |
$150,000 |
$300,000 |
$500,000 |
$950,000 |
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Costs of goods sold: |
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Variable costs |
$ 90,000 |
$150,000 |
$220,000 |
$460,000 |
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Fixed costs |
40,000 |
60,000 |
120,000 |
220,000 |
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Total cost of goods sold |
$130,000 |
$210,000 |
$340,000 |
$680,000 |
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Gross profit |
$ 20,000 |
$ 90,000 |
$160,000 |
$270,000 |
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Selling and administrative expenses: |
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Variable selling and admin. expenses |
$ 30,000 |
$ 45,000 |
$ 95,000 |
$170,000 |
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Fixed selling and admin. expenses |
16,000 |
20,000 |
25,000 |
61,000 |
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Total selling and admin. expenses |
$ 46,000 |
$ 65,000 |
$120,000 |
$231,000 |
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Income (loss) from operations |
$ (26,000) |
$ 25,000 |
$ 40,000 |
$ 39,000 |