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Lamothe Kitchen and Bath makes products for the home, which it sells through major retailers and remodeling ( do - it - yourself, or DIY
Lamothe Kitchen and Bath makes products for the home, which it sells through major retailers and remodeling doityourself, or DIY outlets. One product that has had varying success is a ceiling fan for the kitchen. The fan comes in three sizes Inch, Inch, and Inch which are designed for various kitchen sizes and cooling requirements. The chief financial officer CFO at Lamothe has been looking at the segmented income statement for the fan and is concerned about the results for the inch model.
Inch Inch Inch
Revenues $ $ $
Variable costs
Fixed costs allocated to products
Operating profit loss $ $ $
If the Inch model is dropped, the revenue associated with it would be lost and the related variable costs saved. In addition, the companys total fixed costs would be reduced by percent.
Required:
a Prepare a differential cost schedule to support your recommendation.
b Should Lamothe Kitchen and Bath should drop the Inch model product line?
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