Fleet-of-Foot 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 and will not change with the elimination of any one product. In addition, you have determined that the effects of inventory may be ignored.
The management of the company has deemed the profit performance of the cross training shoe line as unacceptable. As a result, it has decided to eliminate the cross training 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 $240,000.
a. Do you agree with management’s decision and conclusions? Explain your answer.
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 other changes.

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Fleet-of-Foot Inc. Product Income Statements-Absorption Costing For the Year Ended December 31 Revenues.... Cost of goods sold.. Gross profit...... Selling and administrative expenses Operating income...... Cross Training Shoes $12,000,000 (6,000,000) $ 6,000,000 (6,240,000) $ (240,000) Golf Shoes $14,000,000 (7,000,000) $ 7,000,000 (3,500,000) $ 3,500,000 Running Shoes $ 9,000,000 (4,410,000) $ 4,590,000 (3,200,000) $ 1,390,000