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 Revenues Cross Training Shoes Golf Shoes Running Shoes $410,400 $233,900 $194,100 (213,400) (114,600) (130,000) $ 197,000 $119,300 $64,100 Cost of goods sold Gross profit Selling and administrative expenses Operating income (85,900) (107,000) (169,400) $27,600 $33,400 $(42,900) 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 $65,700 $30,400 $27,200 Selling and administrative expenses 49,200 28,100 27,200 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 $42,900. 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 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 $ s sl Fixed costs: $ Total fixed costs s Operating income (loss) c. Use the report in (b) to determine the profit impact of eliminating the running shoe line, assuming no other changes. by If the running shoes line were eliminated, then the contribution margin of the product line would Management should keep the line and attempt to improve the profitability of the product by and the fixed costs prices, be eliminated. Thus, the profit of the company would actually costs. volume, or