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 $ 372,200 231,600 147,230 $ (6,630) 44 Inch $ 574,400 285,680 225,464 $ 63,256 54 Inch $ 352,200 163,500 138,806 $ 49,894 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?
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 $ 372,200 231,600 147,230 $ (6,630) 44 Inch $ 574,400 285,680 225,464 $ 63,256 54 Inch $ 352,200 163,500 138,806 $ 49,894 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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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
$ 372,200
231, 600
147,230
$ (6,630)
44 Inch
$ 574,400
285,680
225,464
$ 63,256
54 Inch
$352,200
163,500
138,806
$ 49,894
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?
> Answer is complete but not entirely correct.
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