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 $31$

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.

a$.$ Are management's decision and conclusions correct?

Management's decision and conclusion are

$.$ The profit.

De improved because the fixed costs used in manufacturing and selling running shoes

: be avoided if the line is eliminated

b$.$ Prepare a variable costing income statement for the three products. Enter a net loss as a negative number using a minus sign.

Fleet$-$of$-$Foot Inc.

Variable Costing Income Statements$-$Three Product

Lines

c$.$ Use the report in $($b$)$ to determine the profit impact of eliminating the running shoe line, assuming no other changes.

If the running shoes line were eliminated, then the contribution margin of the product line would $$ and the fixed cost

volume, or

$EE$ costs.