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allocated to products profit (loss) 242,600 158,230 $(7,730) 296,660 236,464 $ 64,356 174,500 149,806 $ 50,994 model is dropped, the revenue associated with it would be lost and the related variable costs sav al fixed costs would be reduced by 25 percent

allocated to products profit (loss) 242,600 158,230 $(7,730) 296,660 236,464 $ 64,356 174,500 149,806 $ 50,994 model is dropped, the revenue associated with it would be lost and the related variable costs sav al fixed costs would be reduced by 25 percent

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Lamothe Kitchen and Bath makes products for the home, which it sells through major retailers and remodelling (do-it-yourself, or DIY outlets. One product that has had varying success is a ceiling fan for the kitchen. The fan comes in three sizes (36-Inch, 44-Inch, and 54-Inch), which are designed for various kitchen sizes and cooling requirements. The chief financial officer (CFO) at Lamothe has been looking at the segmented income statement for the fan and is concerned about the results for the 36-inch model. Revenues Variable costs Fixed costs allocated to products Operating profit (loss) 36 Inch $ 393,100 242,600 158,230 5(7,730) Revenue Less variable costs Contribution margin Less fixed costs If the 36-Inch model is dropped, the revenue associated with it would be lost and the related variable costs saved. In addition, the company's total fixed costs would be reduced by 25 percent. Status Quo 44 Inch $ 597,500 296,680 236,464 $ 64,356 Required: a. Prepare a differential cost schedule to support your recommendation. b. Should Lamothe Kitchen and Bath should drop the 36-Inch model product line? Complete this question by entering your answers in the tabs below. 54 Inch. $375,300 174,500 149,806 $50,994 Required A Required B Prepare a differential cost schedule to support your recommendation. (Select option "increase" or "decrease", keeping Status Quo as the base. Select "none" if there is no effect.) Alternative: Drop 36-Inch Fan Difference
Transcribed Image Text:Lamothe Kitchen and Bath makes products for the home, which it sells through major retailers and remodelling (do-it-yourself, or DIY outlets. One product that has had varying success is a ceiling fan for the kitchen. The fan comes in three sizes (36-Inch, 44-Inch, and 54-Inch), which are designed for various kitchen sizes and cooling requirements. The chief financial officer (CFO) at Lamothe has been looking at the segmented income statement for the fan and is concerned about the results for the 36-inch model. Revenues Variable costs Fixed costs allocated to products Operating profit (loss) 36 Inch $ 393,100 242,600 158,230 5(7,730) Revenue Less variable costs Contribution margin Less fixed costs If the 36-Inch model is dropped, the revenue associated with it would be lost and the related variable costs saved. In addition, the company's total fixed costs would be reduced by 25 percent. Status Quo 44 Inch $ 597,500 296,680 236,464 $ 64,356 Required: a. Prepare a differential cost schedule to support your recommendation. b. Should Lamothe Kitchen and Bath should drop the 36-Inch model product line? Complete this question by entering your answers in the tabs below. 54 Inch. $375,300 174,500 149,806 $50,994 Required A Required B Prepare a differential cost schedule to support your recommendation. (Select option "increase" or "decrease", keeping Status Quo as the base. Select "none" if there is no effect.) Alternative: Drop 36-Inch Fan Difference
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