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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 three shoes 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 Cost of goods sold Gross profit $500,200 $315,100 $271,000 (260,100) (154,400) (181,600) $240,100 $160,700 $89,400 Selling and administrative expenses (206,500) (115,700) (149,300) $33,600 $45,000 $(59,900) Operating income 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 $80,000 60,000 $41,000 37,800 $37,900 37,900 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 $59,900. a. Are management's decision and conclusions correct? Management's decision and conclusion are incorrect will not be avoided if the line is eliminated. The profit will not be improved because the fixed costs used in manufacturing and selling running shoes

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 shoes 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 Cost of goods sold Gross profit $500,200 $315,100 $271,000 (260,100) (154,400) (181,600) $240,100 $160,700 $89,400 Selling and administrative expenses (206,500) (115,700) (149,300) $33,600 $45,000 $(59,900) Operating income 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 $80,000 60,000 $41,000 37,800 $37,900 37,900 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 $59,900. a. Are management's decision and conclusions correct? Management's decision and conclusion are incorrect will not be avoided if the line is eliminated. The profit will not be improved because the fixed costs used in manufacturing and selling running shoes

Managerial Accounting
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter11: Differential Analysis And Product Pricing
Section: Chapter Questions
Problem 16E
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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 three shoes 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 Cost of goods sold Gross profit $500,200 $315,100 $271,000 (260,100) (154,400) (181,600) $240,100 $160,700 $89,400 Selling and administrative expenses (206,500) (115,700) (149,300) $33,600 $45,000 $(59,900) Operating income 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 $80,000 60,000 $41,000 37,800 $37,900 37,900 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 $59,900. a. Are management's decision and conclusions correct? Management's decision and conclusion are incorrect will not be avoided if the line is eliminated. The profit will not be improved because the fixed costs used in manufacturing and selling running shoes
Transcribed Image Text: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 shoes 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 Cost of goods sold Gross profit $500,200 $315,100 $271,000 (260,100) (154,400) (181,600) $240,100 $160,700 $89,400 Selling and administrative expenses (206,500) (115,700) (149,300) $33,600 $45,000 $(59,900) Operating income 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 $80,000 60,000 $41,000 37,800 $37,900 37,900 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 $59,900. a. Are management's decision and conclusions correct? Management's decision and conclusion are incorrect will not be avoided if the line is eliminated. The profit will not be improved because the fixed costs used in manufacturing and selling running shoes
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