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 $452,400 $276,000 $240,100 Cost of goods sold (235,200) (135,200) (160,900) Gross profit $217,200 $140,800 $79,200 Selling and administrative expenses (186,800) (101,400) (132,300) Operating income $30,400 $39,400 $(53,100) 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 $72,400 $35,900 $33,600 Selling and administrative expenses 54,300 33,100 33,600 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 $53,100.

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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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	$452,400		$276,000	$240,100
Cost of goods sold	(235,200)		(135,200)	(160,900)
Gross profit	$217,200		$140,800	$79,200
Selling and administrative expenses	(186,800)		(101,400)	(132,300)
Operating income	$30,400		$39,400	$(53,100)

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	$72,400		$35,900	$33,600
Selling and administrative expenses	54,300		33,100	33,600

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 $53,100.

a. Are management's decision and conclusions correct?
Management's decision and conclusion are
shoes
Fixed costs:
Total fixed costs
Operating income (loss)
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
$
be avoided if the line is eliminated.
$
$
$
The profit
$
Running Shoes
be improved because the fixed costs used in manufacturing and selling running
Qoolol

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
Thus, the profit of the company would actually
by $
by
prices,
volume, or
and the fixed costs
be eliminated.
Management should keep the line and attempt to improve the profitability of the product
costs.

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