Winslow Inc.

Product Income Statements$-$Absorption Costing

For the Year Ended December $31,20$Y$1$

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.

a$.$ Are management's decision and conclusions correct?

Management's decision and conclusion are $,$:$.$ The profit improved because the fixed costs used in manufacturing and selling running shoes if eliminated.

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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

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Administrative Expenses$)=$ Operating income

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

$$ volume, or reducing $$ costs.