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Category > Accounting Posted 21 Apr 2017 My Price 8.00

Happy Feet Inc. manufactures

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

Happy Feet Inc.
Product Income Statements—Absorption Costing
For the Year Ended December 31, 2016
1   Cross Training Shoes Golf Shoes Running Shoes
2 Revenues $880,000.00 $705,000.00 $625,000.00
3 Cost of goods sold 419,000.00 339,600.00 422,000.00
4 Gross profit $461,000.00 $365,400.00 $203,000.00
5 Selling and administrative expenses 414,000.00 262,500.00 345,000.00
6 Income (Loss) from operations $47,000.00 $102,900.00 $(142,000.00)

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

1   Cross Training Shoes Golf Shoes Running Shoes
2 Fixed costs:      
3 Cost of goods sold $126,500.00 $90,500.00 $119,250.00
4 Selling and administrative expenses 94,600.00 83,000.00 115,750.00

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 $142,000.Required:

A. Do you agree with management’s decision and conclusions? (Note: You may wish to complete part (B), the variable costing income statement, first.)
B. Prepare a variable costing income statement for the three products. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. A colon (:) will automatically appear if it is required. If a net loss is incurred, enter that amount as a negative number using a minus sign. Enter all other amounts as positive numbers.
C. Use the report in (B) to determine the profit impact of eliminating the running shoe line, assuming no other changes. If the running shoe line is eliminated, the profit of the company would increase or decline by the following amount. Use the minus sign to indicate a decline in profit.

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SmartExpert
(118)
Status NEW Posted 21 Apr 2017 05:04 AM My Price 8.00

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Attachments

file 1492754972-Happy Feet Inc manufactures.xlsx preview (370 words )
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