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Variable and Absorption Costing-Three Products Fleet-of-Foot Inc. manufactures and sells three types of shoes. The income statements prepared under the absorption costing method for the
Variable and Absorption Costing-Three Products Fleet-of-Foot Inc. manufactures and sells three types of shoes. The income statements prepared under the absorption costing method for the three hoes are as follows: Fleet-of-Foot Inc. Product Income Statements-Absorption Costing For the Year Ended December 31 Cross Training Shoes Golf Shoes Running Shoes Revenues $490,400 $279,500 $243,200 Cost of goods sold (255,000) (137,000) (162,900) Gross profit $235,400 $142,500 $80,300 Selling and administrative expenses (202,400) (102,600) (134,100) $33,000 $39,900 $(53,800) Operating income En 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 $78,500 $36,300 58,800 33,500 $34,000 34,000 A 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 $53,800. a. Aranagement's decision and conclusions correct? Management's decision and conclusion are The profit be improved because the fixed costs used in be avoided if the line is eliminated. manufacturing and selling running shoes 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 Training Shoes Line Item Description Golf Shoes Running Shoes Fixed costs: Total fixed costs Operating income (loss) c. Use the report in (b) to determine the profit impact of eliminating the running shoe line, assumingtho other changes. If the running shoes line were eliminated, then the contribution margin of the product line would be eliminated. Thus, the profit of the company would actually, keep the line and attempt to improve the profitability of the product by costs. by $ prices, and the fixed costs .Management should volume, or
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