Variable and absorption costing—three products OBJ. 2, 3 Happy Feet Inc. manufactures and sells three types of shoes. The income statements prepared under the absorption costing method for the three shoes are as follows:

Happy Feet Inc.
Product Income Statements—Absorption Costing For the Year Ended December 31, 2016 Cross Training Shoes Golf Shoes Running Shoes Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $800,000 $690,000 $625,000 Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 416,000 338,100 418,750 Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $384,000 $351,900 $206,250 Selling and administrative expenses . . . . . . . . . . . . . . 336,000 248,400 350,000 Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . $ 48,000 $103,500 $(143,750)
In addition, you have determined the following information with respect to allocated fixed costs:
Cross Training Shoes Golf Shoes Running Shoes Fixed costs:
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $128,000 $89,700 $118,750 Selling and administrative expenses . . . . . . . . . . . . 96,000 82,800 118,750 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 $143,750.

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 other changes.