Decision to Discontinue a Product: 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 Shoes Men's Shoes Women's Shoes Total
Sales $235,000 $300,000 $500,000 $1,035,000

Cost of Goods Sold:
Variable Costs $130,000 $150,000 $220,000 $500,000
Fixed Costs $41,000 $60,000 $120,000 $221,000

Total Cost of Goods Sold $171,000 $210,000 $340,000 $721,000

Gross Profit $64,000 $90,000 $160,000 $314,000

Selling and Administrative Expenses:
Variable Selling and Admin. Expenses $46,000 $45,000 $95,000 $186,000
Fixed Selling and Admin, Expenses $35,000 $20,000 $25,000 $80,000

Total Selling and Admin. Expenses $81,000 $65,000 $120,000 $266,000

Income (Loss) from Operations $(17,000) $25,000 $40,000 $48,000

Required:
1. Prepare a differential analysis to determine the flaw in the general manager's decision.
If an amount is zero, enter "0". Use minus sign to indicate a loss.
Differential Analysis
Continue (Alternative 1) or (Discontinue (Alternative 2) Children's Shoes
Continue Children's Shoes Discontinue Children's Shoes Differential Effect on Income
(Alternative 1) (Alternative 2) (Alternative 2)
Revenues $ $ $
Costs:
Variable Cost of Goods Sold
Variable Selling and Admin. Expenses
Fixed Costs

Income (Loss) $ $ $

2. What is the flaw in the decision to discontinue Children's Shoes, if it is assumed fixed costs would not be materially affected by the discontinuance?