Lamothe Kitchen and Bath makes products for the home, which it sells through major retallers and remodeling (do-it-yourself, or DIY) outlets. One product that has had varying success is a ceiling fan for the kitchen. The fan comes in three sizes (36-Inch, 44-Inch, and 54-Inch), which are designed for various kitchen sizes and cooling requirements. The chief financial officer (CFO) at Lamothe has been looking at the segmented Income statement for the fan and is concerned about the results for the 36-Inch model. 44 Inch $ 576,500 54 Inch $354,300 36 Inch Revenues $ 374,100 Variable costs Fixed costs allocated to products operating profit (loss) $ (6,730) $ 63,356 $ 49,994 232,600 148,230 286,680 226,464 164,500 139,806 If the 36-Inch model is dropped, the revenue associated with It would be lost and the related variable costs saved. In addition, the company's total fixed costs would be reduced by 25 percent. Required: a. Prepare a differential cost schedule to support your recommendation. b. Should Lamothe Kitchen and Bath should drop the 36-Inch model product line? Complete this question by entering your answers in the tabs below. Required A Required B Prepare a differential cost schedule to support your recommendation. (Select option "increase" or "decrease", keeping Status Quo as the base. Select "none" if there is no effect.) Revenue Less variable costs Contribution margin Less fixed costs Operating profit Status Quo Alternative: Drop Difference 36-Inch Fan Required B >
Lamothe Kitchen and Bath makes products for the home, which it sells through major retallers and remodeling (do-it-yourself, or DIY) outlets. One product that has had varying success is a ceiling fan for the kitchen. The fan comes in three sizes (36-Inch, 44-Inch, and 54-Inch), which are designed for various kitchen sizes and cooling requirements. The chief financial officer (CFO) at Lamothe has been looking at the segmented Income statement for the fan and is concerned about the results for the 36-Inch model. 44 Inch $ 576,500 54 Inch $354,300 36 Inch Revenues $ 374,100 Variable costs Fixed costs allocated to products operating profit (loss) $ (6,730) $ 63,356 $ 49,994 232,600 148,230 286,680 226,464 164,500 139,806 If the 36-Inch model is dropped, the revenue associated with It would be lost and the related variable costs saved. In addition, the company's total fixed costs would be reduced by 25 percent. Required: a. Prepare a differential cost schedule to support your recommendation. b. Should Lamothe Kitchen and Bath should drop the 36-Inch model product line? Complete this question by entering your answers in the tabs below. Required A Required B Prepare a differential cost schedule to support your recommendation. (Select option "increase" or "decrease", keeping Status Quo as the base. Select "none" if there is no effect.) Revenue Less variable costs Contribution margin Less fixed costs Operating profit Status Quo Alternative: Drop Difference 36-Inch Fan Required B >
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Lamothe Kitchen and Bath makes products for the home, which it sells through major retallers and remodeling (do-it-yourself, or DIY)
outlets. One product that has had varying success is a ceiling fan for the kitchen. The fan comes in three sizes (36-Inch, 44-Inch, and
54-Inch), which are designed for various kitchen sizes and cooling requirements. The chief financial officer (CFO) at Lamothe has been
looking at the segmented Income statement for the fan and is concerned about the results for the 36-Inch model.
44 Inch
$ 576,500
54 Inch
$354,300
36 Inch
Revenues
$ 374,100
Variable costs
Fixed costs allocated to products
operating profit (loss)
$ (6,730)
$ 63,356
$ 49,994
232,600
148,230
286,680
226,464
164,500
139,806
If the 36-Inch model is dropped, the revenue associated with It would be lost and the related variable costs saved. In addition, the
company's total fixed costs would be reduced by 25 percent.
Required:
a. Prepare a differential cost schedule to support your recommendation.
b. Should Lamothe Kitchen and Bath should drop the 36-Inch model product line?
Complete this question by entering your answers in the tabs below.
Required A
Required B
Prepare a differential cost schedule to support your recommendation. (Select option "increase" or "decrease", keeping Status
Quo as the base. Select "none" if there is no effect.)
Revenue
Less variable costs
Contribution margin
Less fixed costs
Operating profit
Status Quo
Alternative:
Drop
Difference
36-Inch Fan
Required B >
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