Winslow Inc. manufactures and sells three types of shoes. as follows: Winslow Inc. Product Income Statements-Absorption Costing For the Year Ended December 31, 2011 Revenues Cost of goods sold Cross Training Shoes Golf Shoes Running Shoes $515,400 $314,400 $273,500 (268,000) (154,100) (183,200) $247,100 $160,300 $90,300 (212,800) (115,400) (150,800) $34,600 $44,900 $(60,500) Gross profit Selling and administrative expenses Operating income 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 $82,500 $40,900 $38,300 Selling and administrative expenses 61,800 37,700 38,300 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 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 $60,500. a. Are management's decision and conclusions correct? Management's decision and conclusion are incorrect The profit will not be improved because the fixed costs used in manufacturing and selling running shoes will not be avoided if the line is eliminated. Feedback Check My Work Consider the impact the elimination of the running shoe line would have on the fixed costs. 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 Revenues 1000 Fixed costs: Total fixed costs Operating income (loss) 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 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
