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 StatementsAbsorption Costing

For the Year Ended December 31, 20Y1Cross Training ShoesGolf ShoesRunning ShoesRevenues$509,800$300,800$258,700Cost of goods sold265,100147,400173,300Gross profit$244,700$153,400$85,400Selling and administrative expenses210,400110,400142,600Income (loss) from operations$34,300$43,000$(57,200)

In addition, you have determined the following information with respect to allocated fixed costs:

Cross Training ShoesGolf ShoesRunning ShoesFixed costs:Cost of goods sold$81,600$39,100$36,200Selling and administrative expenses61,20036,10036,200

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 $57,200.

a.Are management's decision and conclusions correct?

Management's decision and conclusion areincorrect

. The profitwill not

be improved because the fixed costs used in manufacturing and selling running shoeswill not

be avoided if the line is eliminated.

Feedback

Correct

b.Prepare 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 StatementsThree Product LinesFor the Year Ended December 31, 20Y1Cross Training ShoesGolf ShoesRunning ShoesRevenues

$$$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$$$Income from operations$$$