Please give me instruction on this problem; Variable and Absorption Costing—Three Products Shoes R' Us, Inc. manufactures and sells three types of shoes. The income statements prepared under the absorption costing method for the three shoes are as follows: Shoes R' Us, Inc.Product Income Statements—Absorption CostingFor the Year Ended December 31, 2016 Athletic Shoes Casual Shoes Work Shoes Revenues $516,000 $309,600 $263,200 Cost of goods sold 268,300 151,700 176,300 Gross profit $247,700 $157,900 $86,900 Selling and administrative expenses 213,000 113,700 145,100 Income from operations $34,700 $44,200 $-58,200 In addition, you have determined the following information with respect to allocated fixed costs: Athletic Shoes Casual Shoes Work Shoes Fixed costs: Cost of goods sold $82,600 $40,200 $36,800 Selling and administrative expenses 61,900 37,200 36,800 These fixed costs are used to support all three product lines. In addition, you have determined that the inventory is negligible. The management of the company has deemed the profit performance of the work shoe line as unacceptable. As a result, it has decided to eliminate the work shoe line. Management does not expect to be able to increase sales in the other two lines. However, as a result of eliminating the work shoe line, management expects the profits of the company to increase by $58,200. a. Are management’s decision and conclusions correct? Management’s decision and conclusion are _______ . The profit _________be improved because the fixed costs used in manufacturing and selling work shoes ____________ be avoided if the line is eliminated. b. Prepare a variable costing income statement for the three products. If a net loss is incurred, enter that amount as a negative number using a minus sign. Enter all other amounts as positive numbers. Shoes R' Us, Inc. Variable Costing Income Statements—Three Product Lines For the Year Ended December 31, 2016 Athletic Shoes Casual Shoes Work Shoes $ $ $ $ $ $ $ $ $ Fixed costs: $ $ $ Total fixed costs $ $ $ Income from operations $ $ $ c. Use the report in (b) to determine the profit impact of eliminating the work shoe line, assuming no other changes. If the work shoe line were eliminated, then the contribution margin of the product line would ____________ and the fixed costs ____________ be eliminated. Thus, the profit of the company would actually ______________ by $.__________ Liz C
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
Please give me instruction on this problem;
Variable and Absorption Costing—Three Products
Shoes R' Us, Inc. manufactures and sells three types of shoes. The income statements prepared under the absorption costing method for the three shoes are as follows:
| Shoes R' Us, Inc. Product Income Statements—Absorption Costing For the Year Ended December 31, 2016 |
||||||
| Athletic Shoes | Casual Shoes | Work Shoes | ||||
| Revenues | $516,000 | $309,600 | $263,200 | |||
| Cost of goods sold | 268,300 | 151,700 | 176,300 | |||
| Gross profit | $247,700 | $157,900 | $86,900 | |||
| Selling and administrative expenses | 213,000 | 113,700 | 145,100 | |||
| Income from operations | $34,700 | $44,200 | $-58,200 |
In addition, you have determined the following information with respect to allocated fixed costs:
| Athletic Shoes | Casual Shoes | Work Shoes | ||||
| Fixed costs: | ||||||
| Cost of goods sold | $82,600 | $40,200 | $36,800 | |||
| Selling and administrative expenses | 61,900 | 37,200 | 36,800 |
These fixed costs are used to support all three product lines. In addition, you have determined that the inventory is negligible.
The management of the company has deemed the profit performance of the work shoe line as unacceptable. As a result, it has decided to eliminate the work shoe line. Management does not expect to be able to increase sales in the other two lines. However, as a result of eliminating the work shoe line, management expects the profits of the company to increase by $58,200.
a. Are management’s decision and conclusions correct?
Management’s decision and conclusion are _______ . The profit _________be improved because the fixed costs used in manufacturing and selling work shoes ____________ be avoided if the line is eliminated.
b. Prepare a variable costing income statement for the three products. If a net loss is incurred, enter that amount as a negative number using a minus sign. Enter all other amounts as positive numbers.
| Shoes R' Us, Inc. | |||
| Variable Costing Income Statements—Three Product Lines | |||
| For the Year Ended December 31, 2016 | |||
| Athletic Shoes | Casual Shoes | Work Shoes | |
| $ | $ | $ | |
| $ | $ | $ | |
| $ | $ | $ | |
| Fixed costs: | |||
| $ | $ | $ | |
| Total fixed costs | $ | $ | $ |
| Income from operations | $ | $ | $ |
c. Use the report in (b) to determine the profit impact of eliminating the work shoe line, assuming no other changes.
If the work shoe line were eliminated, then the contribution margin of the product line would ____________ and the fixed costs ____________ be eliminated. Thus, the profit of the company would actually ______________ by $.__________
Liz C
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 2 images
