Homework Help is Here – Start Your Trial Now!
Business
Accounting
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

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question
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
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS