Revenues Winslow Inc., manufactures and sells three types of shoes. The income statements prepared under the absorption costing method for the three shoes are as follows: Winslow Inc. Product Income Statements-Absorption Costing For the Year Ended December 31, 2011 Cross Training Shoes Golf Shoes Running Shoes $554,000 $343,500 $295,400 Cost of goods sold (288,100) (168,300) (197,900) Gross profit $265,900 $175,200 $97,500 Selling and administrative expenses (228,700) (126,100) (162,800) Operating income $37,200 $49,100 $(65,300) In addition, you have determined the following information with respect to allocated fixed costs: Cross Golf Running Training Shoes Shoes Shoes Fixed costs: Cost of goods sold $88,600 $44,700 $41,400 Selling and administrative expenses 66,500 41,200 41,400 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 running shoe line, management expects the profits of the company to increase by $65,300. a. Are management's decision and conclusions correct? Management's decision and conclusion are incorrect The profit will not be improved because the fixed costs used in manufacturing and selling running shoes will not 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. Winslow Inc. Variable Costing Income Statements-Three Product Lines For the Year Ended December 31, 20Y1 Cross Training Running Golf Shoes Shoes Shoes Revenues 554,000 343,500 295,400 Variable cost of goods sold Manufacturing margin Variable selling and administrative expenses in Contribution margin I! Fixed costs Fixed manufacturing costs 88,600 44,700 41,400 Fixed selling and administrative expenses 66,500 41,200 41,400 Total fixed costs 155,100 85,900 82,800 Operating income (loss) 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 be eliminated and the fixed costs would not be eliminated. Thus, the profit of the company would actually decline by $ Management should keep the line and attempt to improve the profitability of the product by increasing prices, increasing volume, or reducing costs