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
	Cross Training Shoes		Golf Shoes		Running Shoes
Revenues	$386,900		$236,000		$198,200
Cost of goods sold	201,200		115,600		132,800
Gross profit	$185,700		$120,400		$65,400
Selling and administrative expenses	159,700		86,700		109,200
Income (loss) from operations	$26,000		$33,700		$(43,800)

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	$61,900		$30,700		$27,700
Selling and administrative expenses	46,400		28,300		27,700

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 $43,800.

a. Are managements decision and conclusions correct?

Managements decision and conclusion are

correctincorrect

. The profit

willwill not

be improved because the fixed costs used in manufacturing and selling running shoes

willwill not

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; enter all other amounts as positive numbers.

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

	Cross Training Shoes	Golf Shoes	Running Shoes
Contribution marginManufacturing marginRevenuesVariable cost of goods soldVariable selling expenses	$- Select -	$- Select -	$- Select -
Contribution marginManufacturing marginRevenuesVariable cost of goods soldVariable selling expenses	- Select -	- Select -	- Select -
Contribution marginManufacturing marginRevenuesVariable cost of goods soldVariable selling expenses	$- Select -	$- Select -	$- Select -
Contribution marginManufacturing marginRevenuesVariable cost of goods soldVariable selling and administrative expenses	- Select -	- Select -	- Select -
Contribution marginManufacturing marginRevenuesVariable cost of goods soldVariable selling expenses	$- Select -	$- Select -	$- Select -
Fixed costs:
Fixed contribution marginFixed manufacturing costsFixed salesVariable cost of goods manufacturedVariable cost of goods sold	$- Select -	$- Select -	$- Select -
Fixed selling and administrative expensesFixed manufacturing marginVariable cost of goods manufacturedVariable cost of goods soldVariable selling and administrative expenses	- Select -	- Select -	- Select -
Total fixed costs	$fill in the blank 653fe2ff1020045_29	$fill in the blank 653fe2ff1020045_30	$fill in the blank 653fe2ff1020045_31
Income from operations	$fill in the blank 653fe2ff1020045_32	$fill in the blank 653fe2ff1020045_33	$fill in the blank 653fe2ff1020045_34

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 increasebe eliminated and the fixed costs wouldwould not be eliminated. Thus, the profit of the company would actually improvedecline by $fill in the blank b173d7f77027f88_4. Management should keep the line and attempt to improve the profitability of the product by increasingdecreasing prices, increasingdecreasing volume, or increasingreducing costs.