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 StatementsAbsorption Costing

For the Year Ended December 31, 2016

1		Cross Training Shoes	Golf Shoes	Running Shoes
2	Revenues	$880,000.00	$685,000.00	$635,000.00
3	Cost of goods sold	420,000.00	339,200.00	416,000.00
4	Gross profit	$460,000.00	$345,800.00	$219,000.00
5	Selling and administrative expenses	411,200.00	243,800.00	362,300.00
6	Income (Loss) from operations	$48,800.00	$102,000.00	$(143,300.00)

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

1		Cross Training Shoes	Golf Shoes	Running Shoes
2	Fixed costs:
3	Cost of goods sold	$127,500.00	$89,700.00	$120,000.00
4	Selling and administrative expenses	94,300.00	82,400.00	115,750.00

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 $144,500.

Labels
December 31, 2016
Fixed costs
For the Year Ended December 31, 2016
Amount Descriptions
Contribution margin
Contribution margin ratio
Fixed manufacturing costs
Fixed selling and administrative expenses
Income (Loss) from operations
Manufacturing margin
Revenues
Sales mix
Total fixed costs
Variable cost of goods sold
Variable selling and administrative expenses

B. Prepare a variable costing income statement for the three products. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. A colon (:) will automatically appear if it is required. If a net loss is incurred, enter that amount as a negative number using a minus sign. Enter all other amounts as positive numbers.

Happy Feet Inc.

Variable Costing Income StatementThree Product Lines

1		Cross Training Shoes	Golf Shoes	Running Shoes
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C. Use the report in (B) to determine the profit impact of eliminating the running shoe line, assuming no other changes. Use the minus sign to indicate a decline in profit.

If the running shoe line is eliminated, the profit of the company would increase/(decline) by