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 Revenues Cost of goods sold Gross profit Selling and administrative expenses Operating income $556,400 $317,100 $269,500 (289,300) (155,400) (180,600) $267,100 $161,700 $88,900 (229,700) (116,400) (148,500) $37,400 $45,300 $(59,600) In addition, you have determined the following information with respect to allocated fixed costs: Fixed costs: Cost of goods sold Selling and administrative expenses Cross Training Shoes Golf Running Shoes Shoes $89,000 $41,200 $37,700 66,800 38,100 37,700 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. 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, 20Y1 Cross Training Shoes Golf Shoes Running Shoes Fixed costs: Total fixed costs Operating income (loss) Feedback 0000 10000 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 eliminated. Thus, the profit of the company would actually profitability of the product by prices, i by s volume, or and the fixed costs -Management should keep the line and attempt to improve the costs. Feedback Check My Work Consider the impact the elimination of the running shoe line would have on sales as well as variable and fixed costs. Feedback Check My Work Partially correct bel Coast to Coast Surfboards Inc. manufactures and sells two styles of surfboards, Atlantic Wave and Pacific Pounder. These surfboards are sold in two regions, East Coast and West Coast. Information about the two surfboards is as follows: Atlantic Wave Pacific Pounder Sales price $250 $200 Variable cost of goods sold per unit (93) (98) Manufacturing margin per unit $157 $102 Variable selling expense per unit (112) (46) Contribution margin per unit $45 $56 The sales unit volume for the territories and products for the period is as follows: Atlantic Wave Pacific Pounder East Coast West Coast 3,560 1,780 0 1,780 a. Prepare a contribution margin by sales territory report. Compute the contribution margin ratio for each territory as a whole percent, rounded to two decimal places, if required. Coast to Coast Surfboards Inc. Contribution Margin by Territory East Coast West Coast a. Prepare a contribution margin by sales territory report. Compute the contribution margin ratio for each territory as a whole percent, rounded to two decimal places, if required. Coast to Coast Surfboards Inc. Contribution Margin by Territory East Coast West Coast Contribution margin ratio b. What advice would you give to the management of Coast to Coast Surfboards regarding the relative profitability of the two territories? The total contribution margin is East Coast sells only Atlantic Wave, which have a attempting to improve the company's profitability, it is ( the variable selling expenses per unit for the for the East Coast, while the contribution margin ratio is L contribution margin ratio but al for West Coast. This is because contribution margin per unit. In that changing the mix of products to the two territories will have much effect. In addition, may be too high. of the three largest business segments for Time Warner, Inc., for a recent year follow. Each segment includes a number of businesses, examples of which are indicated in parentheses. Time Warner, Inc. Segment Revenues (in millions) Turner (cable networks and digital media) Home Box Office (pay television) $67,400 71,600 Warner Bros. (films, television, and videos) 69,800 Assume that the variable costs as a percent of sales for each segment are as follows: Turner 28% Home Box Office Warner Bros. 53% 45% a. Determine the contribution margin and contribution margin ratio for each segment from the information given. When required, round to the nearest whole. millionth (for example, round 5,688.7 to 5,689). Round contribution margin ratio to whole percents for each segment from the information given. Revenues Variable costs Contribution margin Contribution margin ratio (as a percent) Turner Home Box Office Warner Bros. Variable Costing Income Statement for a Service Company The actual and planned data for Underwater University for the Fall term were as follows: Actual Planned Enrollment 4,500 4,125 Tuition per credit hour $120 $135 Credit hours 60,450 43,200 Registration, records, and marketing costs per enrolled student Instructional costs per credit hour $275 $64 $275 $60 Depreciation on classrooms and equipment $825,600 $825,600 Registration, records, and marketing costs vary by the number of enrolled students, while instructional costs vary by the number of credit hours. Depreciation is a fixed cost. Prepare a variable costing income statement showing the contribution margin and operating income for the Fall term. Revenue Underwater University Variable Costing Income Statement Variable costs: For the Fall Term Registration, records, and marketing costs Instructional costs Total variable costs Contribution margin Depreciation on classrooms and equipment Operating income