Shoes R' Us, Inc. manufactures and sells three types of shoes. The income statements prepared under the absorption costing method for the three shoes are as follows:

Shoes R' Us, Inc. Product Income StatementsAbsorption Costing For the Year Ended December 31, 2016
	Athletic Shoes		Casual Shoes		Work Shoes
Revenues	$464,100		$264,500		$230,100
Cost of goods sold	241,300		129,600		154,200
Gross profit	$222,800		$134,900		$75,900
Selling and administrative expenses	191,600		97,100		126,800
Income from operations	$31,200		$37,800		$-50,900

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

	Athletic Shoes		Casual Shoes		Work Shoes
Fixed costs:
Cost of goods sold	$74,300		$34,400		$32,200
Selling and administrative expenses	55,700		31,700		32,200

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 work shoe line as unacceptable. As a result, it has decided to eliminate the work shoe line. Management does not expect to be able to increase sales in the other two lines. However, as a result of eliminating the work shoe line, management expects the profits of the company to increase by $50,900.

a. Are managements decision and conclusions correct?

Managements decision and conclusion are incorrect . The profit will not be improved because the fixed costs used in manufacturing and selling work shoes will not be avoided if the line is eliminated.

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b. Prepare a variable costing income statement for the three products. Enter a net loss as a negative number using a minus sign; enter all other amounts as positive numbers.

Shoes R' Us, Inc.
Variable Costing Income StatementsThree Product Lines
For the Year Ended December 31, 2016
	Athletic Shoes	Casual Shoes	Work Shoes
Revenues	$	$	$
Variable cost of goods sold
Manufacturing margin	$	$	$
Variable selling and administrative expenses
Contribution margin	$	$	$
Fixed costs:
Fixed manufacturing costs	$	$	$
Fixed selling and administrative expenses
Total fixed costs	$	$	$
Income from operations	$	$	$

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c. Use the report in (b) to determine the profit impact of eliminating the work shoe line, assuming no other changes.

If the work shoe line were eliminated, then the contribution margin of the product line would be eliminated and the fixed costs would not be eliminated. Thus, the profit of the company would actually decline by $.