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 $368,300 $224,700 $188,700 Cost of goods sold 191,500 110,100 126,400 Gross profit $176,800 $114,600 $62,300 Selling and administrative expenses 152,000 82,500 104,000 Income (loss) from operations $24,800 $32,100 $(41,700) 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 $58,900 $29,200 $26,400 Selling and administrative expenses 44,200 27,000 26,400 These fixed costs are used to support all three product lines. In addition, you have determined that the inventory is negligible. 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 $41,700. a. Are management’s decision and conclusions correct? Management’s decision and conclusion are incorrect . The profit will not be improved because the fixed costs used in manufacturing and selling running shoes will not be avoided if the line is eliminated. Feedback Correct b. Prepare a variable costing income statement for the three products. Enter a net loss as a negative number using a minus sign; enter all other amounts as positive numbers. Winslow Inc. Variable Costing Income Statements—Three Product Lines For the Year Ended December 31, 20Y1 Cross Training Shoes Golf Shoes Running Shoes 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 $ $ $ Income from operations $ $ $ Feedback c. Use the report in (b) to determine the profit impact of eliminating the running shoes line, assuming no other changes. If the running shoes line were eliminated, then the contribution margin of the product line would be eliminated and the fixed costs would not be eliminated. Thus, the profit of the company would actually decline by $_____. Management should keep the line and attempt to improve the profitability of the product by increasing prices, increasing volume, or reducing costs.

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 $368,300 $224,700 $188,700 Cost of goods sold 191,500 110,100 126,400 Gross profit $176,800 $114,600 $62,300 Selling and administrative expenses 152,000 82,500 104,000 Income (loss) from operations $24,800 $32,100 $(41,700) 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 $58,900 $29,200 $26,400 Selling and administrative expenses 44,200 27,000 26,400 These fixed costs are used to support all three product lines. In addition, you have determined that the inventory is negligible. 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 $41,700. a. Are management’s decision and conclusions correct? Management’s decision and conclusion are incorrect . The profit will not be improved because the fixed costs used in manufacturing and selling running shoes will not be avoided if the line is eliminated. Feedback Correct b. Prepare a variable costing income statement for the three products. Enter a net loss as a negative number using a minus sign; enter all other amounts as positive numbers. Winslow Inc. Variable Costing Income Statements—Three Product Lines For the Year Ended December 31, 20Y1 Cross Training Shoes Golf Shoes Running Shoes 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 $ $ $ Income from operations $ $ $ Feedback c. Use the report in (b) to determine the profit impact of eliminating the running shoes line, assuming no other changes. If the running shoes line were eliminated, then the contribution margin of the product line would be eliminated and the fixed costs would not be eliminated. Thus, the profit of the company would actually decline by $_____. Management should keep the line and attempt to improve the profitability of the product by increasing prices, increasing volume, or reducing 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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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	$368,300		$224,700	$188,700
Cost of goods sold	191,500		110,100	126,400
Gross profit	$176,800		$114,600	$62,300
Selling and administrative expenses	152,000		82,500	104,000
Income (loss) from operations	$24,800		$32,100	$(41,700)

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	$58,900		$29,200	$26,400
Selling and administrative expenses	44,200		27,000	26,400

These fixed costs are used to support all three product lines. In addition, you have determined that the inventory is negligible.

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 $41,700.

a. Are management’s decision and conclusions correct?

Management’s decision and conclusion are incorrect . The profit will not be improved because the fixed costs used in manufacturing and selling running shoes will not be avoided if the line is eliminated.

Feedback

Correct

b. Prepare a variable costing income statement for the three products. Enter a net loss as a negative number using a minus sign; enter all other amounts as positive numbers.

Winslow Inc.
Variable Costing Income Statements—Three Product Lines
For the Year Ended December 31, 20Y1
	Cross Training Shoes	Golf Shoes	Running Shoes
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	$	$	$
Income from operations	$	$	$

Feedback

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

If the running shoes line were eliminated, then the contribution margin of the product line would be eliminated and the fixed costs would not be eliminated. Thus, the profit of the company would actually decline by $_____. Management should keep the line and attempt to improve the profitability of the product by increasing prices, increasing volume, or reducing costs.

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