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Variable and Absorption Costing Three ProductsFleet - of - Foot Inc. manufactures and sells three types of shoes. The income statements prepared under the absorption
VariableandAbsorption CostingThree ProductsFleetofFoot Inc. manufactures and sells 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 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 cross training shoe line as unacceptable. As a result, it has decided to eliminate the cross training shoe line. Management does not expect to be able to increase sales in the other two lines. However, as a result of eliminating the cross training shoe line, management expects the profits of the company to increase by $a Are managements decision and conclusions correct?
Managements decision and conclusion are fill in the blank of correctincorrectThe profit fill in the blank of willwill notbe improved because the fixed costs used in manufacturing and selling cross training shoes fill in the blank of willwill notbe avoided if the line is eliminated.bbPrepare a variable costing income statement for the three products. Enter a net loss as a negative number using a minus sign.cUse the report in b to determine the profit impact of eliminating the cross training shoe line, assuming no other changes. If the cross training shoe line were eliminated, then the contribution margin of the product line would fill in the blank of be eliminatedincreaseand the fixed costs fill in the blank of wouldwould notbe eliminated. Thus, the profit of the company would actually fill in the blank of declineimproveby fill in the blank of $ Management should keep the line and attempt to improve the profitability of the product by fill in the blank of decreasingincreasingpricesfill in the blank of decreasingincreasingvolume or fill in the blank of increasingreducingcosts
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