Winslow Inc., manufactures and sells three types of shoes. The income statements prepared under the absorption costing method for the three shoes are a follows: Winslow Inc. Product Income Statements-Absorption Costing For the Year Ended December 31, 2011 Fixed costs Cross Training Shoes Golf Shoes Running Shoes Revenues $302,900 Cost of goods sold (146,400) Gross profe $154,500 Selling and administrative expenses (111,200) Operating income $43,300 In addition, you have determined the following information with respect to allocated fixed costs: $460,800 (250,000) $230,800 (198,500) $32,300 Cross Training Shoes Golf Running Shoes $257,500 (172,500) $85,000 (142,000) $(57,000) Cost of goods sold $76,900 $39,400 $36,100 Selling and administrative expenses $7,700 36,300 36,100 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 the line management expects the profits of the company to increase by $57,000. a. Are management's decision and conclusions correct?
Winslow Inc., manufactures and sells three types of shoes. The income statements prepared under the absorption costing method for the three shoes are a follows: Winslow Inc. Product Income Statements-Absorption Costing For the Year Ended December 31, 2011 Fixed costs Cross Training Shoes Golf Shoes Running Shoes Revenues $302,900 Cost of goods sold (146,400) Gross profe $154,500 Selling and administrative expenses (111,200) Operating income $43,300 In addition, you have determined the following information with respect to allocated fixed costs: $460,800 (250,000) $230,800 (198,500) $32,300 Cross Training Shoes Golf Running Shoes $257,500 (172,500) $85,000 (142,000) $(57,000) Cost of goods sold $76,900 $39,400 $36,100 Selling and administrative expenses $7,700 36,300 36,100 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 the line management expects the profits of the company to increase by $57,000. a. Are management's decision and conclusions correct?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 a
follows:
Winslow Inc.
Product Income Statements-Absorption Costing
For the Year Ended December 31, 2011
Fixed costs
Cross Training Shoes Golf Shoes
Revenues
Cost of goods sold
Gross profe
$230,800 $154,500
Selling and administrative expenses
(198,500)
(111,200)
Operating income
$32,300
$43,300
In addition, you have determined the following information with respect to allocated fixed costs:
$460,800 $302,900
(250,000) (148,400)
Cross
Training
Shoes
Running Shoes
$257,500
(172,500)
$85,000
(142,000)
$(57,000)
Golf Running
Shoes Shoes
$76,900 $39,400 $36,100
57,700 36,300 36,100
Cost of goods sold
Selling and administrative expenses
These fixed costs are used to support all three product ines 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 the ne
management expects the profits of the company to increase by $57,000.
a. Are management's decision and conclusions correct?
manufacturing and seling
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