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, 20Y1 1 Cross Training Shoes Golf Shoes Running Shoes 2 Revenues $880,000.00 $685,000.00 $635,000.00 3 Cost of goods sold 420,000.00 339,200.00 416,000.00 4 Gross profit $460,000.00 $345,800.00 $219,000.00 5 Selling and administrative expenses 411,200.00 243,800.00 362,300.00 6 Income (Loss) from operations $48,800.00 $102,000.00 $(143,300.00) In addition, you have determined the following information with respect to allocated fixed costs: 1 Cross Training Shoes Golf Shoes Running Shoes 2 Fixed costs: 3 Cost of goods sold $127,500.00 $89,700.00 $120,000.00 4 Selling and administrative expenses 94,300.00 82,400.00 143,300.00 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 $143,300. Required: a. Do you agree with managements decision and conclusions? Explain your answer. (Note: You may wish to complete part (b), the variable costing income statement, first.) b. Prepare a variable costing income statement for the three products. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. A colon (:) will automatically appear if it is required. If a net loss is incurred, enter that amount as a negative number using a minus sign. Enter all other amounts as positive numbers. c. Use the report in (b) to determine the profit impact of eliminating the running shoe line, assuming no other changes. Use the minus sign to indicate a decline in profit. Labels December 31, 20Y1 Fixed costs For the Year Ended December 31, 20Y1 Amount Descriptions Contribution margin Contribution margin ratio Fixed manufacturing costs Fixed selling and administrative expenses Income (Loss) from operations Manufacturing margin Revenues Sales mix Total fixed costs Variable cost of goods sold Variable selling and administrative expenses b. Prepare a variable costing income statement for the three products. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. A colon (:) will automatically appear if it is required. If a net loss is incurred, enter that amount as a negative number using a minus sign. Enter all other amounts as positive numbers. Score: 86/156 Winslow Inc. Variable Costing Income StatementThree Product Lines For the Year Ended December 31, 20Y1 1 Cross Training Shoes Golf Shoes Running Shoes 2 Revenues $880,000.00 $685,000.00 $635,000.00 3 Variable cost of goods sold 292,500.00 249,100.00 302,750.00 4 Manufacturing margin $587,500.00 $455,900.00 $322,250.00 5 Variable selling and administrative expenses 319,400.00 17,500.00 203,000.00 6 Contribution margin $268,100.00 $276,400.00 $119,250.00 7 Fixed costs: 8 Fixed manufacturing costs $126,500.00 $90,500.00 $119,250.00 9 Fixed selling and administrative expenses 94,600.00 83,000.00 142,000.00 10 Total fixed costs $22,100.00 $173,500.00 $261,250.00 11 Income (Loss) from operations $47,000.00 $102,900.00 $(142,000.00) Points: 20.95 / 38 Check My Work When recasting the variable costing income statement, remember that under variable costing, all fixed factory overhead costs are deducted in the period incurred. Revenues - Variable Cost of Goods Sold = Manufacturing Margin; Manufacturing Margin - Variable Selling and Administrative Expenses = Contribution Margin; Contribution Margin - (Fixed Manufacturing Costs + Fixed Selling and Administrative Expenses) = Income from Operations