Answer :
Answer:
Hawkeye Shoes Inc.
Differential Analysis:
Alternative 1: Continue with Children Shoes:
Hawkeye Shoes Inc. Product-Line Income Statement For the Year Ended November 30, 20Y8
Children's Men's Women's Total Sales $280,000 $300,000 $500,000 $1,080,000
Costs of goods sold:
Variable costs $(135,000) $(150,000) $(220,000) $(505,000)
Fixed costs (45,000) (60,000) (120,000) (225,000)
Total cost of goods
sold $(180,000) $(210,000) $(340,000) $(730,000)
Gross profit $100,000 $90,000 $160,000 $350,000
Selling and administrative expenses:
Variable selling and
admin. expenses $(100,000) $(45,000) $(95,000) $(240,000) Fixed selling and
admin. expenses (30,000) (20,000) (25,000) (75,000)
Total selling and
admin. expenses $(130,000) $(65,000) $(120,000) $(315,000)
Operating income
(loss) $(30,000) $25,000 $40,000 $35,000
Alternative 2: Discontinue Children Shoes:
Hawkeye Shoes Inc. Product-Line Income Statement For the Year Ended November 30, 20Y8
Men's Women's Total
Sales $300,000 $500,000 $800,000
Costs of goods sold:
Variable costs $(150,000) $(220,000) $(370,000)
Fixed costs (60,000) (120,000) (180,000)
Total cost of goods sold $(210,000) $(340,000) $(550,000)
Gross profit $90,000 $160,000 $250,000
Selling and administrative expenses:
Variable selling and admin. $(45,000) $(95,000) $(140,000)
Fixed selling and admin. (20,000) (25,000) (45,000)
Total selling and admin. $(65,000) $(120,000) $(185,000)
Operating income (loss) $25,000 $40,000 $65,000
Choose Alternative 2, the elimination of Children Shoes, as this increases the total profits from $35,000 to $65,000.
Explanation:
a) Data and Calculations:
Hawkeye Shoes Inc. Product-Line Income Statement For the Year Ended November 30, 20Y8
Children's Men's Women's Total Sales $280,000 $300,000 $500,000 $1,080,000
Costs of goods sold:
Variable costs $(135,000) $(150,000) $(220,000) $(505,000)
Fixed costs (45,000) (60,000) (120,000) (225,000)
Total cost of goods
sold $(180,000) $(210,000) $(340,000) $(730,000)
Gross profit $100,000 $90,000 $160,000 $350,000
Selling and administrative expenses:
Variable selling and
admin. expenses $(100,000) $(45,000) $(95,000) $(240,000) Fixed selling and
admin. expenses (30,000) (20,000) (25,000) (75,000)
Total selling and
admin. expenses $(130,000) $(65,000) $(120,000) $(315,000)
Operating income
(loss) $(30,000) $25,000 $40,000 $35,000
Hawkeye Shoes Inc. differential analysis helps it to choose between alternatives 1 and 2 concerning the continuation or discontinuation of Children Shoes production. It is an important tool in managerial accounting to helps management to make research-driven decisions.