Question

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

1		Cross Training Shoes	Golf Shoes	Running Shoes
2	Revenues	$810,000.00	$710,000.00	$635,000.00
3	Cost of goods sold	410,000.00	339,400.00	422,000.00
4	Gross profit	$400,000.00	$370,600.00	$213,000.00
5	Selling and administrative expenses	353,000.00	267,300.00	356,400.00
6	Income (Loss) from operations	$47,000.00	$103,300.00	$(143,400.00)

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	$129,000.00	$89,500.00	$121,000.00
4	Selling and administrative expenses	94,400.00	82,200.00	143,400.00

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 $143,400.

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.

A.If the running shoe line is eliminated, the profit of the company would increase/(decline) by $________

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Answer 1

	Running Shoes
Revenues	635000
Less: Variable Cost of goods sold	301000	=422000-121000
Less: Variable Selling and administrative expenses	213000	=356400-143400
Contribution margin generated by Running Shoes	121000
If the running shoe line is eliminated, the profit of the company would decline by Contribution margin generated by Running Shoes
The profit of the company would (decline) by $ (121000) or -121000