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 $408,400 $241,000 $204,900 Cost of goods sold (212,400) (118,100) (137,300) Gross profit $196,000 $122,900 $67,600 Selling and administrative expenses (168,600) (88,500) (112,900) Operating income $27,400 $34,400 $(45,300) In addition, you have determined the following information with respect to allocated foed costs: Cross Golf Running Training Shoes Shoes Shoes Fixed costs Cost of goods sold 565,300 $31,300 $28,700 Selling and administrative expenses 49,000 28,900 28,700 These fixed costs are used to support all the 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 shoeline 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 diminating the running shoeline, management expects the profits of the company to increase by $45,300 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 shoeline, management expects the profits of the company to increase by $45,300 a. Are management's decision and conclusions correct? Management's 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 coting Income statement for the three products. Enter a net lost as a negative number using a minus sign. Winslow Inc Variable Costing Income Statements-Three Product Lines For the Year Ended December 31, 2011 Cross Training Shoes Golf Shoes Running Shoes Fixed costs Dini 0100 Total fixed costs Operating income foss) 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 Statements - Three Product Lines For the Year Ended December 31, 2011 Cross Training Shoes Golf Shoes Running Shoes Fixed costs: Total fixed costs din Operating Income (loss) c. Use the report in (b) to determine the profit impact of eliminating the running shoeline, assuming no other changes. If the running shoes tine 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
