Product Income Statements-Absorption Costing For the Year Ended December 31 Cross Training Shoes Golf Shoes Running Shoes Revenues $541,300 $314,000 $266,900 Cost of goods sold (281,500) (153,900) (178,800) Gross profit $259,800 $160,100 $88,100 Selling and administrative expenses (223,400) (115,300) (147,100) Operating income $36,400 $44,800 $(59,000) 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 Selling and administrative expenses $86,600 65,000 $40,800 37,700 $37,400 37,400 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 $59,000. a. Are management's decision and conclusions correct? Management's decision and conclusion are incorrect . The profit will not be improved because the fixed costs used in manufacturing and selling running shoes will not be avoided if the line is eliminated. Feedback Check My Work Consider the impact the elimination of the running shoe line would have on the fixed costs. b. Prepare a variable costing income statement for the three products. Enter a net loss as a negative number using a minus sign. Fleet-of-Foot Inc. Variable Costing Income Statements-Three Product Lines For the Year Ended December 31 Cross Previous Next