Question

Pls leave if you are not sure about the answer, and do not copy from the chegg, pls explain A and C througly.

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	$830,000.00	$720,000.00	$640,000.00
3	Cost of goods sold	418,000.00	339,800.00	417,000.00
4	Gross profit	$412,000.00	$380,200.00	$223,000.00
5	Selling and administrative expenses	363,800.00	277,200.00	366,400.00
6	Income (Loss) from operations	$48,200.00	$103,000.00	$(143,400.00)

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	$127,000.00	$89,900.00	$118,750.00
4	Selling and administrative expenses	94,700.00	82,800.00	117,500.00

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 $142,500. Required:

A. Do you agree with management's decision and conclusions?

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.

Answer 1

A)	No. I do not agree with the management's decisions and
	conclusions as they have considered irrelevant costs also
	while making the decision.
	The irrelevant costs are the fixed costs which do not vary
	with the decision taken, as they are just allocated costs.
B)		Cross Training Shoes	Golf Shoes	Running shoes	Total
	Revenues	$        8,30,000	$         7,20,000	$        6,40,000	$      21,90,000
	Variable expenses:
	Cost of goods sold	$        2,91,000	$         2,49,900	$        2,98,250	$         8,39,150
	Selling and administrative expenses	$        2,69,100	$         1,94,400	$        2,48,900	$         7,12,400
	Total variable expenses	$        5,60,100	$         4,44,300	$        5,47,150	$      15,51,550
	Contribution margin	$        2,69,900	$         2,75,700	$            92,850	$         6,38,450
	Fixed expenses:
	Cost of goods sold (127000+89900+118750)				$         3,35,650
	Selling and administration expenses (94700+82800+117500)				$         2,95,000
	Total fixed expenses				$         6,30,650
	Income from operations				$               7,800
C)	If the running shoe line is eliminated, the operating profit of the company would decline by				$           -92,850
	CHECK:
		Cross Training Shoes	Golf Shoes	Running shoes	Total
	Revenues	$        8,30,000	$         7,20,000	$                     -	$      15,50,000
	Variable expenses:
	Cost of goods sold	$        2,91,000	$         2,49,900	$                     -	$         5,40,900
	Selling and administrative expenses	$        2,69,100	$         1,94,400	$                     -	$         4,63,500
	Total variable expenses	$        5,60,100	$         4,44,300	$                     -	$      10,04,400
	Contribution margin	$        2,69,900	$         2,75,700	$                     -	$         5,45,600
	Fixed expenses:
	Cost of goods sold (127000+89900+118750)				$         3,35,650
	Selling and administration expenses (94700+82800+117500)				$         2,95,000
	Total fixed expenses				$         6,30,650
	Income from operations				$           -85,050
	Change in profit = -85050-7800 =	-92850