Kobeer Inc. 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 running shoe line as unacceptable. As a result, it has decided to eliminate the running shoe line. Management does not expect to be able to increase sales in the other two lines. However, as a result of eliminating the running shoe line, management expects the profits of the company to increase by $ 114,000.
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 running shoe line, assuming no otherchanges.

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Kobeer Inc. Product Income Statements-Absorption Costing For the Year Ended December 31, 2014 Basketball Cross Training Running Shoes Shoes Shoes $696,000 588,000 360,000 336,000 288,000 288,000 300000 216000 84000 504,000 336,000 168,000 282,000 (114,000) Gross profit S 48,000 Basketball Cross Training Running Shoes Shoes Shoes Fixed cost:s $108000 84,000 $78,000 72,000 96,000 96,000