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, 20Y1 Cross Training Shoes Golf Shoes Running Shoes $400,100 $228,100 $198,400 208,100 111,800 132,900 Revenues Cost of goods sold Gross profit $192,000 $116,300 $65,500 Selling and administrative expenses 165,100 83,700 109,400 Income (loss) from operations $26,900 $32,600 $(43,900) 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 $64,000 $29,700 $27,800 48,000 27,400 27,800 These fixed costs are used to support all three product lines. In addition, you have determined that the inventory is negligible. 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 $43,900. a. Are management's decision and conclusions correct? Management's decision and conclusion are The profit be improved because the fixed costs used in manufacturing and selling running shoes 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; enter all other amounts as positive numbers. Winslow Inc. Variable Costing Income Statements-Three Product Lines For the Year Ended December 31, 20Y1 Cross Training Shoes Golf Shoes Running Shoes 1000000000 DDO IOID DDDIN TODO Fixed costs: Total fixed costs Income from operations C. Use the report in (b) to determine the profit impact of eliminating the running shoes line, assuming no other changes. be eliminated. Thus, the profit of If the running shoes line were eliminated, then the contribution margin of the product line would and the fixed costs the company would actually by $ Management should keep the line and attempt to improve the profitability of the product by volume, or costs. prices