Kobeer Inc. manufactures and sells three types of shoes. The income statements prepared under the absorption costing method for the three shoes are as follows:

In addition, you have determined the following information with respect to allocated fixed costs:

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 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 $ 114,000.
a. Do you agree with management’s decision and conclusions?
b. Prepare a variable costing income statement for the three products.
c. Use the report in (b) to determine the profit impact of eliminating the running shoe line, assuming no otherchanges.

  • CreatedJune 27, 2014
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