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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: Revenues Winslow Inc. Product Income Statements-Absorption Costing For the Year Ended December 31, 20Y1 Fixed costs: Cross Training Shoes Golf Shoes $521,500 (271,200) $250,300 (215,300) $35,000 $302,500 $260,200 Cost of goods sold (148,200) (174,300) Gross profit $154,300 $85,900 Selling and administrative expenses (111,100) (143,500) Operating income $43,200 $(57,600) In addition, you have determined the following information with respect to allocated fixed costs: Cross Training Shoes Running Shoes Golf Running Shoes Shoes $83,400 62,600 36,300 Cost of goods sold $39,300 $36,400 Selling and administrative expenses 36,400 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 oe line, mana ent expects the profits of the company to increase by $57,600.

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: Revenues Winslow Inc. Product Income Statements-Absorption Costing For the Year Ended December 31, 20Y1 Fixed costs: Cross Training Shoes Golf Shoes $521,500 (271,200) $250,300 (215,300) $35,000 $302,500 $260,200 Cost of goods sold (148,200) (174,300) Gross profit $154,300 $85,900 Selling and administrative expenses (111,100) (143,500) Operating income $43,200 $(57,600) In addition, you have determined the following information with respect to allocated fixed costs: Cross Training Shoes Running Shoes Golf Running Shoes Shoes $83,400 62,600 36,300 Cost of goods sold $39,300 $36,400 Selling and administrative expenses 36,400 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 oe line, mana ent expects the profits of the company to increase by $57,600.

FINANCIAL ACCOUNTING
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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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 Fixed costs: Cross Training Shoes Golf Shoes Running Shoes Revenues $521,500 $302,500 Cost of goods sold (271,200) (148,200) Gross profit $250,300 $154,300 Selling and administrative expenses (215,300) (111,100) Operating income $35,000 $43,200 In addition, you have determined the following information with respect to allocated fixed costs: Cross Training Shoes $260,200 (174,300) $85,900 (143,500) $(57,600) Golf Running Shoes Shoes Cost of goods sold $83,400 $39,300 $36,400 Selling and administrative expenses 62,600 36,300 36,400 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 $57,600.
Transcribed Image Text: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 Fixed costs: Cross Training Shoes Golf Shoes Running Shoes Revenues $521,500 $302,500 Cost of goods sold (271,200) (148,200) Gross profit $250,300 $154,300 Selling and administrative expenses (215,300) (111,100) Operating income $35,000 $43,200 In addition, you have determined the following information with respect to allocated fixed costs: Cross Training Shoes $260,200 (174,300) $85,900 (143,500) $(57,600) Golf Running Shoes Shoes Cost of goods sold $83,400 $39,300 $36,400 Selling and administrative expenses 62,600 36,300 36,400 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 $57,600.
a. Are management's decision and conclusions correct? Management's decision and conclusion are incorrect ✓. The profit will not costs used in manufacturing and selling running shoes will not ✓be avoided if the line is eliminated. Feedback Check My Work 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. Revenues Variable cost of goods sold Manufacturing margin Variable selling and administrative expenses Contribution margin Fixed costs: Fixed manufacturing costs Fixed selling and administrative expenses Total fixed costs Winslow Inc. Variable Costing Income Statements-Three Product Lines For the Year Ended December 31, 20Y1 Cross Training Shoes Operating income (loss) $ 521,500 271,200 X 250,300 X 215,300 X 35,000 X 0006 83,400 62,600 ✔be improved because the fixed 146,000 -111,000 X $ Golf Shoes 302,500 ✓ 154,300 X 154,300 X 111,100 X 43,200 Running Shoes 260,200 ✔ $ X $ -32,400 X 39,300 ✔ 36,300 ✔ 75,600 $ $ $ 85,900 X 85,900 X 143,500 X 57,600 X 36,400 36,400 ✔ 72,800 ✓ -130,400 X
Transcribed Image Text:a. Are management's decision and conclusions correct? Management's decision and conclusion are incorrect ✓. The profit will not costs used in manufacturing and selling running shoes will not ✓be avoided if the line is eliminated. Feedback Check My Work 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. Revenues Variable cost of goods sold Manufacturing margin Variable selling and administrative expenses Contribution margin Fixed costs: Fixed manufacturing costs Fixed selling and administrative expenses Total fixed costs Winslow Inc. Variable Costing Income Statements-Three Product Lines For the Year Ended December 31, 20Y1 Cross Training Shoes Operating income (loss) $ 521,500 271,200 X 250,300 X 215,300 X 35,000 X 0006 83,400 62,600 ✔be improved because the fixed 146,000 -111,000 X $ Golf Shoes 302,500 ✓ 154,300 X 154,300 X 111,100 X 43,200 Running Shoes 260,200 ✔ $ X $ -32,400 X 39,300 ✔ 36,300 ✔ 75,600 $ $ $ 85,900 X 85,900 X 143,500 X 57,600 X 36,400 36,400 ✔ 72,800 ✓ -130,400 X
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