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	$452,000		$275,700		$234,300
Cost of goods sold	(235,000)		(135,100)		(157,000)
Gross profit	$217,000		$140,600		$77,300
Selling and administrative expenses	(186,600)		(101,200)		(129,100)
Operating income	$30,400		$39,400		$(51,800)

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	$72,300		$35,800		$32,800
Selling and administrative expenses	54,200		33,100		32,800

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 $51,800.

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.

Winslow Inc.
Variable Costing Income StatementsThree Product Lines
For the Year Ended December 31, 20Y1
	Cross Training Shoes	Golf Shoes	Running Shoes
	$fill in the blank 3d4c21fdc00b064_2	$fill in the blank 3d4c21fdc00b064_3	$fill in the blank 3d4c21fdc00b064_4
	fill in the blank 3d4c21fdc00b064_6	fill in the blank 3d4c21fdc00b064_7	fill in the blank 3d4c21fdc00b064_8
	$fill in the blank 3d4c21fdc00b064_10	$fill in the blank 3d4c21fdc00b064_11	$fill in the blank 3d4c21fdc00b064_12
	fill in the blank 3d4c21fdc00b064_14	fill in the blank 3d4c21fdc00b064_15	fill in the blank 3d4c21fdc00b064_16
	$fill in the blank 3d4c21fdc00b064_18	$fill in the blank 3d4c21fdc00b064_19	$fill in the blank 3d4c21fdc00b064_20
Fixed costs:
	$fill in the blank 3d4c21fdc00b064_22	$fill in the blank 3d4c21fdc00b064_23	$fill in the blank 3d4c21fdc00b064_24
	fill in the blank 3d4c21fdc00b064_26	fill in the blank 3d4c21fdc00b064_27	fill in the blank 3d4c21fdc00b064_28
Total fixed costs	$fill in the blank 3d4c21fdc00b064_29	$fill in the blank 3d4c21fdc00b064_30	$fill in the blank 3d4c21fdc00b064_31
Operating income (loss)	$fill in the blank 3d4c21fdc00b064_32	$fill in the blank 3d4c21fdc00b064_33	$fill in the blank 3d4c21fdc00b064_34

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 $fill in the blank 4b5cd8059045fc1_4. Management should keep the line and attempt to improve the profitability of the product by increasing prices, increasing volume, or reducing costs.