Variable and Absorption Costing—Three Products 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 Cross Training Shoes Golf Shoes Running Shoes Revenues $506,400 $303,800 $261,300 Cost of goods sold (263,300) (148,900) (175,100) Gross profit $243,100 $154,900 $86,200 Selling and administrative expenses (209,100) (111,500) (144,000) Operating income $34,000 $43,400 $(57,800) 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 $81,000 $39,500 $36,600 Selling and administrative expenses 60,800 36,500 36,600 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 $57,800. 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 $fill in the blank dd8b1603704c040_2 $fill in the blank dd8b1603704c040_3 $fill in the blank dd8b1603704c040_4 fill in the blank dd8b1603704c040_6 fill in the blank dd8b1603704c040_7 fill in the blank dd8b1603704c040_8 $fill in the blank dd8b1603704c040_10 $fill in the blank dd8b1603704c040_11 $fill in the blank dd8b1603704c040_12 fill in the blank dd8b1603704c040_14 fill in the blank dd8b1603704c040_15 fill in the blank dd8b1603704c040_16 $fill in the blank dd8b1603704c040_18 $fill in the blank dd8b1603704c040_19 $fill in the blank dd8b1603704c040_20 Fixed costs: $fill in the blank dd8b1603704c040_22 $fill in the blank dd8b1603704c040_23 $fill in the blank dd8b1603704c040_24 fill in the blank dd8b1603704c040_26 fill in the blank dd8b1603704c040_27 fill in the blank dd8b1603704c040_28 Total fixed costs $fill in the blank dd8b1603704c040_29 $fill in the blank dd8b1603704c040_30 $fill in the blank dd8b1603704c040_31 Operating income (loss) $fill in the blank dd8b1603704c040_32 $fill in the blank dd8b1603704c040_33 $fill in the blank dd8b1603704c040_34 c. Use the report in (b) to determine the profit impact of eliminating the running shoe line, assuming no other changes. If the running shoes line were eliminated, then the contribution margin of the product line would and the fixed costs be eliminated. Thus, the profit of the company would actually by $fill in the blank f44f9bf2afce012_4. Management should keep the line and attempt to improve the profitability of the product by prices, volume, or costs.

Variable and Absorption Costing—Three Products 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 Cross Training Shoes Golf Shoes Running Shoes Revenues $506,400 $303,800 $261,300 Cost of goods sold (263,300) (148,900) (175,100) Gross profit $243,100 $154,900 $86,200 Selling and administrative expenses (209,100) (111,500) (144,000) Operating income $34,000 $43,400 $(57,800) 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 $81,000 $39,500 $36,600 Selling and administrative expenses 60,800 36,500 36,600 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 $57,800. 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 $fill in the blank dd8b1603704c040_2 $fill in the blank dd8b1603704c040_3 $fill in the blank dd8b1603704c040_4 fill in the blank dd8b1603704c040_6 fill in the blank dd8b1603704c040_7 fill in the blank dd8b1603704c040_8 $fill in the blank dd8b1603704c040_10 $fill in the blank dd8b1603704c040_11 $fill in the blank dd8b1603704c040_12 fill in the blank dd8b1603704c040_14 fill in the blank dd8b1603704c040_15 fill in the blank dd8b1603704c040_16 $fill in the blank dd8b1603704c040_18 $fill in the blank dd8b1603704c040_19 $fill in the blank dd8b1603704c040_20 Fixed costs: $fill in the blank dd8b1603704c040_22 $fill in the blank dd8b1603704c040_23 $fill in the blank dd8b1603704c040_24 fill in the blank dd8b1603704c040_26 fill in the blank dd8b1603704c040_27 fill in the blank dd8b1603704c040_28 Total fixed costs $fill in the blank dd8b1603704c040_29 $fill in the blank dd8b1603704c040_30 $fill in the blank dd8b1603704c040_31 Operating income (loss) $fill in the blank dd8b1603704c040_32 $fill in the blank dd8b1603704c040_33 $fill in the blank dd8b1603704c040_34 c. Use the report in (b) to determine the profit impact of eliminating the running shoe line, assuming no other changes. If the running shoes line were eliminated, then the contribution margin of the product line would and the fixed costs be eliminated. Thus, the profit of the company would actually by $fill in the blank f44f9bf2afce012_4. Management should keep the line and attempt to improve the profitability of the product by prices, volume, or costs.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Variable and Absorption Costing—Three Products

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
	Cross Training Shoes	Golf Shoes	Running Shoes
Revenues	$506,400		$303,800	$261,300
Cost of goods sold	(263,300)		(148,900)	(175,100)
Gross profit	$243,100		$154,900	$86,200
Selling and administrative expenses	(209,100)		(111,500)	(144,000)
Operating income	$34,000		$43,400	$(57,800)

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	$81,000		$39,500	$36,600
Selling and administrative expenses	60,800		36,500	36,600

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 $57,800.

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
	$fill in the blank dd8b1603704c040_2	$fill in the blank dd8b1603704c040_3	$fill in the blank dd8b1603704c040_4
	fill in the blank dd8b1603704c040_6	fill in the blank dd8b1603704c040_7	fill in the blank dd8b1603704c040_8
	$fill in the blank dd8b1603704c040_10	$fill in the blank dd8b1603704c040_11	$fill in the blank dd8b1603704c040_12
	fill in the blank dd8b1603704c040_14	fill in the blank dd8b1603704c040_15	fill in the blank dd8b1603704c040_16
	$fill in the blank dd8b1603704c040_18	$fill in the blank dd8b1603704c040_19	$fill in the blank dd8b1603704c040_20
Fixed costs:
	$fill in the blank dd8b1603704c040_22	$fill in the blank dd8b1603704c040_23	$fill in the blank dd8b1603704c040_24
	fill in the blank dd8b1603704c040_26	fill in the blank dd8b1603704c040_27	fill in the blank dd8b1603704c040_28
Total fixed costs	$fill in the blank dd8b1603704c040_29	$fill in the blank dd8b1603704c040_30	$fill in the blank dd8b1603704c040_31
Operating income (loss)	$fill in the blank dd8b1603704c040_32	$fill in the blank dd8b1603704c040_33	$fill in the blank dd8b1603704c040_34

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

If the running shoes line were eliminated, then the contribution margin of the product line would and the fixed costs be eliminated. Thus, the profit of the company would actually by $fill in the blank f44f9bf2afce012_4. Management should keep the line and attempt to improve the profitability of the product by prices, volume, or costs.

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