Variable and Absorption Coming Three Products Winslow Inc, manufactures and sell 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 Gold Shoes Running Shoes 55,300,000 $6,900,000 $4,200,000 Cost of goods sold (3,016,000) (3,381,000) 2,814,000) Coro $2,784,000 $3,519,000 $1,386,000 Seling and distrative expenses (2.4036,000) (2,484.000) (2,142.000) Operating income Ination, you have determined the information with reset to do Cross Golf Running Training $ Cost of goods sold Sehing and administrave expenses $928,000 66,000 7.000 8 000 $798,000 000 These fixed costs are used to support three product lines and will not change with the climation 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 go performance of the running shoe l as naceptable. As a result, it has decided to iminate the running shoebe Management does not expect to be able to increase in the other two lines. However, as a result of luminating the running show, management expects the profits of the company to increase by $750,000 a. Are management's decision and conclusions correct? Management decision and conclusion are incorrect the profit will not be improved because the foxed costs used in manufacturing and selling running shoes will not be avoided if the line is eliminated Corder the impact the elimination of the running shoeline would have on the fixed costs b. Prepare a variable costing income Mement for the three products, internet loss as a negative number us Window Inc Variable Corting Income twents Three Product Lines For the Year Ended December 31, 2011 Cross Training Shoes Golf Shoes Running Shoes when the commen t are factory a re deducted in the curred. Be w o od by Variable and Absorption Costing-Three Products 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 Revenues $5,800,000 $6,900,000 $4,200,000 Cost of goods sold (3,016,000) (3,381,000) (2,814,000) Gross profit $2,784,000 $3,519,000 $1,386,000 Selling and administrative expenses (2,436,000) (2.484,000) (2,142,000) Operating income $348,000 $1,035,000 $(756,000) In addition, you have determined the following information with respect to allocated fixed costs: Cross Training Shoes Golf Shoes Running Shoes Fixed costs: Cost of goods sold Selling and administrative expenses $928,000 $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 inver 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. 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, 2011 Cross Training Shoes Golf Shoes Running Shoes DOVI Fixed costs: III LII QUOD Total feed costs Operating income (loss)
