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Exercise 4-44 (Algo) Dropping Product Lines (LO 4-4) Lamothe Kitchen and Bath makes products for the home, which it sells through major retailers and remodeling (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 $ 383,600 237,600 153,230 $(7,230) 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. Required A Required B. 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? 44 Inch $ 587,000 291,680 231,464 $ 63,856 Complete this question by entering your answers in the tabs below. Revenue Less variable costs Contribution margin Less fixed costs Operating profit Status Quo 54 Inch $364,800 169,500 144,806 $ 50,494 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

Exercise 4-44 (Algo) Dropping Product Lines (LO 4-4) Lamothe Kitchen and Bath makes products for the home, which it sells through major retailers and remodeling (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 $ 383,600 237,600 153,230 $(7,230) 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. Required A Required B. 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? 44 Inch $ 587,000 291,680 231,464 $ 63,856 Complete this question by entering your answers in the tabs below. Revenue Less variable costs Contribution margin Less fixed costs Operating profit Status Quo 54 Inch $364,800 169,500 144,806 $ 50,494 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

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Exercise 4-44 (Algo) Dropping Product Lines (LO 4-4) Lamothe Kitchen and Bath makes products for the home, which it sells through major retailers and remodeling (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 $ 383,600 237,600 153,230 $ (7,230). Required A Required B 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. 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? Revenue Less variable costs Contribution margin Less fixed costs Operating profit 44 Inch $ 587,000 Complete this question by entering your answers in the tabs below. Status Quo 291,680 231,464 $63,856 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 54 Inch $364,800 169,500 144,806 $ 50,494 < Required A Difference Required B >
Transcribed Image Text:Exercise 4-44 (Algo) Dropping Product Lines (LO 4-4) Lamothe Kitchen and Bath makes products for the home, which it sells through major retailers and remodeling (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 $ 383,600 237,600 153,230 $ (7,230). Required A Required B 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. 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? Revenue Less variable costs Contribution margin Less fixed costs Operating profit 44 Inch $ 587,000 Complete this question by entering your answers in the tabs below. Status Quo 291,680 231,464 $63,856 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 54 Inch $364,800 169,500 144,806 $ 50,494 < Required A Difference Required B >
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