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	$524,400		$314,600		$273,700
Cost of goods sold	272,700		154,200		183,400
Gross profit	$251,700		$160,400		$90,300
Selling and administrative expenses	216,500		115,500		150,800
Income (loss) from operations	$35,200		$44,900		$(60,500)

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	$83,900		$40,900		$38,300
Selling and administrative expenses	62,900		37,800		38,300

These fixed costs are used to support all three product lines. In addition, you have determined that the inventory is negligible.

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.

Question Content Area

a. Are management’s decision and conclusions correct?

Management’s decision and conclusion are

correct 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.

Question Content Area

b. Prepare a variable costing income statement for the three products. Enter a net loss as a negative number using a minus sign; enter all other amounts as positive numbers.

Winslow Inc.
Variable Costing Income Statements—Three Product Lines
For the Year Ended December 31, 20Y1

	Cross Training Shoes	Golf Shoes	Running Shoes
Contribution margin Manufacturing marginRevenuesVariable cost of goods soldVariable selling expenses	$- Select -	$- Select -	$- Select -
Contribution margin Manufacturing marginRevenuesVariable cost of goods soldVariable selling expenses	- Select -	- Select -	- Select -
Contribution margin Manufacturing marginRevenuesVariable cost of goods soldVariable selling expenses	$- Select -	$- Select -	$- Select -
Contribution margin Manufacturing marginRevenuesVariable cost of goods soldVariable selling and administrative expenses	- Select -	- Select -	- Select -
Contribution margin Manufacturing marginRevenuesVariable cost of goods soldVariable selling expenses	$- Select -	$- Select -	$- Select -
Fixed costs:
Fixed contribution margin Fixed manufacturing costs Fixed sales Variable cost of goods manufactured Variable cost of goods sold	$- Select -	$- Select -	$- Select -
Fixed selling and administrative expenses Fixed manufacturing margin Variable cost of goods manufactured Variable cost of goods sold Variable selling and administrative expenses	- Select -	- Select -	- Select -
Total fixed costs	$fill in the blank cf6de1f82fc2fa5_29	$fill in the blank cf6de1f82fc2fa5_30	$fill in the blank cf6de1f82fc2fa5_31
Income from operations	$fill in the blank cf6de1f82fc2fa5_32	$fill in the blank cf6de1f82fc2fa5_33	$fill in the blank cf6de1f82fc2fa5_34

Question Content Area

c. Use the report in (b) to determine the profit impact of eliminating the running shoes line, assuming no other changes.

If the running shoes line were eliminated, then the contribution margin of the product line would

increase be eliminated and the fixed costs would not be eliminated. Thus, the profit of the company would actually

improve decline by $fill in the blank 7fa26d05cfdefc8_4. Management should keep the line and attempt to improve the profitability of the product by increasing decreasing prices, increasing decreasing volume, or increasing reducing costs.