East Coast Footwear Company manufactures and sells three types of shoes. The income statements prepared under the absorption costing method for the three shoes are as follows:

In addition, you have determined the following information with respect to allocated fixed costs:

These fixed costs are used to support all three product lines. In addition, you have determined that the inventory is negligible.
The management of the company has deemed the profit performance of the work shoe line as unacceptable. As a result, it has decided to eliminate the work shoe line. Management does not expect to be able to increase sales in the other two lines. However, as a result of eliminating the work shoe line, management expects the profits of the company to increase by $76,000.
a. Do you agree with management's decision and conclusions?
b. Prepare a variable costing income statement for the three products.
c. Use the report in (b) to determine the profit impact of eliminating the work shoe line, assuming no otherchanges.

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East Coast Footwear Company Product Income Statements-Absorption Costing For the Year Ended December 31, 2010 Athletic Shoes Casual Shoes Work Shoes Revenues Cost of goods sold Gross profit Selling and administrative expenses Income from operations $464,000 240,000 $224,000 192000 32,000 $392,000 192,000 $200,000 144,000 $ 56,000 336,000 224,000 $112,000 188,000 $ (76,000) Athletic Shoes Casual Shoes Work Shoes Fixed costs: Cost of goods sold Selling and administrative expenses $72,000 56,000 $52,000 48,000 $48,000 48,000