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eBookPrint Item Question Content Area Variable and Absorption Costing Three Products Fleet - of - Foot Inc. manufactures and sells three types of shoes. The
eBookPrint Item
Question Content Area
Variable and Absorption CostingThree Products
FleetofFoot Inc. manufactures and sells three types of shoes. The income statements prepared under the absorption costing method for the three shoes are as follows:
FleetofFoot Inc.
Product Income StatementsAbsorption Costing
For the Year Ended December
Line Item Description Cross Training Shoes Golf Shoes Running Shoes
Revenues $ $ $
Cost of goods sold
Gross profit $ $ $
Selling and administrative expenses
Operating income $ $ $
In addition, you have determined the following information with respect to allocated fixed costs:
Line Item Description Cross Training Shoes Golf Shoes Running Shoes
Fixed costs:
Cost of goods sold $ $ $
Selling and administrative expenses
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 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 $
Question Content Area
a Are managements decision and conclusions correct?
Managements decision and conclusion are fill in the blank of
The profit fill in the blank of
be improved because the fixed costs used in manufacturing and selling running shoes fill in the blank of
be avoided if the line is eliminated.
Question Content Area
b Prepare a variable costing income statement for the three products. Enter a net loss as a negative number using a minus sign.
FleetofFoot Inc.
Variable Costing Income StatementsThree Product Lines
For the Year Ended December
Line Item Description Cross
Training
Shoes
Golf
Shoes
Running
Shoes
$ Select
$ Select
$ Select
Select
Select
Select
$ Select
$ Select
$ Select
Select
Select
Select
$ Select
$ Select
$ Select
Fixed costs:
$ Select
$ Select
$ Select
Select
Select
Select
Total fixed costs $Total fixed costs
$Total fixed costs
$Total fixed costs
Operating income loss $Operating income loss
$Operating income loss
$Operating income loss
Question Content Area
c Use the report in b to determine the profit impact of eliminating the running shoe line, assuming no other changes.
If the running shoes line were eliminated, then the contribution margin of the product line would fill in the blank of
and the fixed costs fill in the blank of
be eliminated. Thus, the profit of the company would actually fill in the blank of
by fill in the blank of $
Management should keep the line and attempt to improve the profitability of the product by fill in the blank of
prices, fill in the blank of
volume, or fill in the blank of
costs.
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