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	$445,900		$254,200		$221,200
Cost of goods sold	(231,900)		(124,600)		(148,200)
Gross profit	$214,000		$129,600		$73,000
Selling and administrative expenses	(184,000)		(93,300)		(121,900)
Operating income	$30,000		$36,300		$(48,900)

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	$71,300		$33,000		$31,000
Selling and administrative expenses	53,500		30,500		31,000

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 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 $48,900.

a. Are managements decision and conclusions correct?

Managements 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.

Feedback

Consider the impact the elimination of the running shoe line would have on the fixed costs.

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 StatementsThree Product Lines
For the Year Ended December 31, 20Y1
	Cross Training Shoes	Golf Shoes	Running Shoes
Revenues	$fill in the blank 089e0b043f8f003_2	$fill in the blank 089e0b043f8f003_3	$fill in the blank 089e0b043f8f003_4
Variable cost of goods sold	fill in the blank 089e0b043f8f003_6	fill in the blank 089e0b043f8f003_7	fill in the blank 089e0b043f8f003_8
Manufacturing margin	$fill in the blank 089e0b043f8f003_10	$fill in the blank 089e0b043f8f003_11	$fill in the blank 089e0b043f8f003_12
Variable selling and administrative expenses	fill in the blank 089e0b043f8f003_14	fill in the blank 089e0b043f8f003_15	fill in the blank 089e0b043f8f003_16
Contribution margin	$fill in the blank 089e0b043f8f003_18	$fill in the blank 089e0b043f8f003_19	$fill in the blank 089e0b043f8f003_20
Fixed costs:
Fixed manufacturing costs	$fill in the blank 089e0b043f8f003_22	$fill in the blank 089e0b043f8f003_23	$fill in the blank 089e0b043f8f003_24
Fixed selling and administrative expenses	fill in the blank 089e0b043f8f003_26	fill in the blank 089e0b043f8f003_27	fill in the blank 089e0b043f8f003_28
Total fixed costs	$fill in the blank 089e0b043f8f003_29	$fill in the blank 089e0b043f8f003_30	$fill in the blank 089e0b043f8f003_31
Operating income (loss)	$fill in the blank 089e0b043f8f003_32	$fill in the blank 089e0b043f8f003_33	$fill in the blank 089e0b043f8f003_34