Variable and Absorption CostingThree 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 StatementsAbsorption Costing For the Year Ended December 31, 20Y1
	Cross Training Shoes		Golf Shoes		Running Shoes
Revenues	$516,900		$320,500		$278,800
Cost of goods sold	268,800		157,000		186,800
Gross profit	$248,100		$163,500		$92,000
Selling and administrative expenses	213,400		117,700		153,600
Income (loss) from operations	$34,700		$45,800		$(61,600)

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	$82,700		$41,700		$39,000
Selling and administrative expenses	62,000		38,500		39,000

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 $61,600.

a. Are managements decision and conclusions correct?

Managements 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 StatementsThree Product Lines
For the Year Ended December 31, 20Y1
	Cross Training Shoes	Golf Shoes	Running Shoes
	$	$	$
	$	$	$
	$	$	$
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.

If the running shoes line were eliminated, then the contribution margin of the product line would and the fixed costs be eliminated. Thus, the profit of the company would actually by $. Management should keep the line and attempt to improve the profitability of the product by prices, volume, or costs.