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, 2011 Cross Training Shoes Golf Shoes Running Shoes Revenues $403,500 $242,100 $210,600 Cost of goods sold (209,800) (118,600) (141,100) Gross profit $193,700 $123,500 $69,500 Selling and administrative expenses (166,600) (88,900) (116,100) Operating Income $27,100 $34,600 ${46,600) In addition, you have determined the following information with respect to allocated fixed costs: Cross Golf Running Training Shoes Shoes Shoes Fixed costs: Cost of goods sold $64,600 $31,500 $29,500 Selling and administrative expenses 48,400 29,100 29,500 These tivert Fixed costs Cost of goods sold $64,600 $31,500 $29,500 Selling and administrative expenses 48,400 29,100 29,500 These fived 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 shoeline Management does not expect to be able to increase sales in the other two lines. However, as a result of eliminating the running shonline, management expects the profits of the company to increase by 546,600. a. Are management's decision and conclusions correct? Management's declion and conclusion are incorrect The profit will not be improved bechose the fixed costs used in manufacturing and selling running shoes will not be avoided it the line is eliminated I De Consider the impact the chimnation of the running shoe he would have on the red costs b. Prepare a variable casting income statement for the three products, Enter a net loss a negative number using a minus in 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 Revenues Variable cost of goods sold Manufacturing margin Variable selling and administrative expenses Contribution margin Fixed costs: Fixed manufacturing costs Fixed selling and administrative expenses Total fixed costs Operating income (loss) be 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 eliminated. Thus, the profit of the company would actually decline by Management should keep the line and attempt to improve the profitability of the product by increasing prices, increasing volume, or reducing costs