Variable and absorption costing - three products

Varinbie and Absorption Costing-Three Products Feet-of-Foot Inc. manufactures and selis three types of shoes. The income statements prepared under the absorption costing method for the three shoes are as follows: In addition, you have determined the following information with respect to allocated fixed costs: These foxed costs are used to support all three product lines and will not change with the ellmination of any one product. In addition, you have determined that the effects of inventory may be ignered. The management of the company has deemed the profit performance of the running shoe line as unacceptabie. 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 pronts of the company to increase by $45,000. a. Are management's decision and conclusions correct? Management's decision and conclusion are The profit be improved becavise the fixed costs used in manufacturing and selling running shoes be avoided if the line is etiminated. manufacturing and selling running shoes be avoided if the tine is eliminated. b. Prepare a vaciable costing incocie 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 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 and the fixed costs be eliminated. Thus, the profit of the company would actually Manaqement should keep the line and attempt to improve the profitability of the product by prices