Question

Winslow Inc. Product Income Statements—Absorption Costing For the Year Ended December 31, 20Y1
	Cross Training Shoes		Golf Shoes		Running Shoes
Revenues	$320,800		$198,900		$169,100
Cost of goods sold	(166,800)		(97,500)		(113,300)
Gross profit	$154,000		$101,400		$55,800
Selling and administrative expenses	(132,400)		(73,000)		(93,200)
Operating income	$21,600		$28,400		$(37,400)

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	$51,300		$25,900		$23,700
Selling and administrative expenses	38,500		23,900		23,700

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 $37,400.

a. Are management’s decision and conclusions correct?

Management’s decision and conclusion are  . The profit   be improved because the fixed costs used in manufacturing and selling running shoes   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.

Winslow Inc.
Variable Costing Income Statements—Three Product Lines
For the Year Ended December 31, 20Y1
	Cross Training Shoes	Golf Shoes	Running Shoes
Fixed costs:
Total fixed costs
Operating income (loss)

Answer 1

SOLUTION:

a)	managements decision and conclusion are incorrect .The profit will not be improved
	because the fixed costs used in manufacturing and sellling running shoes will not be avoided
	if the line is eliminated
				cross	Golf	Running
				training	shoes	shoes
	cost of goods sold
	Variable			115500	71600	89600
	fixed			51300	25900	23700
	total			166800	97500	113300
	Selling and administrative expense
	Variable			93900	49100	69500
	fixed			38500	23900	23700
	total			132400	73000	93200
b)		cross	Golf	Running
		training	shoes	shoes
	Revenues	320800	198900	169100
	Less: variable cost of goods sold	115500	71600	89600
	manufacturing margin	205300	127300	79500
	Less: variable selling & adm expense	93900	49100	69500
	Contribution margin	111400	78200	10000	199600
	Fixed costs:
	fixed manufacturing costs	51300	25900	23700	100900
	fixed selling & adm expense	38500	23900	23700	86100
	total fixed costs	89800	49800	47400	187000
	income from operations	21600	28400	-37400	12600