3. Carl on Duty Footwear manufactures and sells three products. The income statements prepared under the absorption costing method for the three products are as follows: Carl on Duty Footwear Product Income Statements - Absorption Costing For the Year Ended January 31 Financial Categories Non-Slip Shoes 5,700,000 Steel Toe Boots Work Boots $ 4,200,000.00 $ 2,814,000.00 24 Revenues 6,900,000 Cost of goods sold Gross profit 3,016,000 3,392,000 2,684,000 3,508,000 1,386,000 Selling and admin expenses 2,466,000 2,484,000 2,041,000 Income from operations 218,000 1,024,000 (655,000) Fixed Costs Cost of goods sold Selling and admin expenses 928,000 2$ 897,000 798,000 696,000 828,000 588,000 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 work boot line, management expects the profits of the company to increase by $655,000. а. Do you agree with managementť's decision and conclusions? Explain your answer. b. Prepare a variable costing income statement for the three products. C. Use the report in (a) to determine the profit impact of eliminating the work boot line assuming no other changes.
3. Carl on Duty Footwear manufactures and sells three products. The income statements prepared under the absorption costing method for the three products are as follows: Carl on Duty Footwear Product Income Statements - Absorption Costing For the Year Ended January 31 Financial Categories Non-Slip Shoes 5,700,000 Steel Toe Boots Work Boots $ 4,200,000.00 $ 2,814,000.00 24 Revenues 6,900,000 Cost of goods sold Gross profit 3,016,000 3,392,000 2,684,000 3,508,000 1,386,000 Selling and admin expenses 2,466,000 2,484,000 2,041,000 Income from operations 218,000 1,024,000 (655,000) Fixed Costs Cost of goods sold Selling and admin expenses 928,000 2$ 897,000 798,000 696,000 828,000 588,000 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 work boot line, management expects the profits of the company to increase by $655,000. а. Do you agree with managementť's decision and conclusions? Explain your answer. b. Prepare a variable costing income statement for the three products. C. Use the report in (a) to determine the profit impact of eliminating the work boot line assuming no other changes.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Question
Transcribed Image Text:3. Carl on Duty Footwear manufactures and sells three products. The income statements prepared
under the absorption costing method for the three products are as follows:
Carl on Duty Footwear
Product Income Statements - Absorption Costing
For the Year Ended January 31
Financial Categories
Non-Slip Shoes
2$
Steel Toe Boots
Work Boots
$4
$ 4,200,000.00
$ 2,814,000.00
Revenues
5,700,000
6,900,000
Cost of goods sold
3,016,000
3,392,000
Gross profit
$
2,684,000
$
3,508,000
$
1,386,000
Selling and admin expenses
2,466,000
2,484,000
2,041,000
Income from operations
218,000
1,024,000
(655,000)
Fixed Costs
Cost of goods sold
$
928,000
897,000
$
798,000
Selling and admin expenses
$
696,000
$
828,000
$
588,000
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 work
boot line, management expects the profits of the company to increase by $655,000.
а.
Do you agree with management's decision and conclusions? Explain your answer.
b. Prepare a variable costing income statement for the three products.
C.
Use the report in (a) to determine the profit impact of eliminating the work boot line
assuming no other changes.
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