Winslow Inc.Product Income Statements-Absorption CostingFor the Year Ended December 31, 20Y1Cross Training ShoesGolf Shoes Running ShoesRevenues$351,800$214,600$178,100Cost of goods sold182,900105,200119,300Gross profit$168,900$109,400$58,800Selling and administrative expenses145,30078,80098,200Income (loss) from operations$23,600$30,600$(39,400)In addition, you have determined the following information with respect to allocated fixed costs:CrossGolfRunningTrainingShoesShoesShoesFixed costs:Cost of goods sold$56,300 $27,900 $24,900Selling and administrative expenses42,20025,80024,900These 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 shoeline. 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 theprofits of the company to increase by $39,400.a. Are management's decision and conclusions correct?Management's decision and conclusion are incorrect v. The profit will not vbe improved because the fixed costs used in manufacturing and selling runningshoes will not v be avoided if the line is eliminated. Cross Training ShoesGolf ShoesRunning ShoesRevenues V351,800214,600$178,100Variable cost of goods sold vManufacturing margin v$Variable selling and administrative expenses vContribution margin v$Fixed costs:Fixed manufacturing costs v$Fixed selling and administrative expenses vTotal fixed costsIncome from operationsFeedbackV Check My WorkWhen recasting the variable costing income statement, remember that under variable costing, all fixed factory overhead costs are deducted in the period incurred. Revenues - VariableCost of Goods Sold = Manufacturing Margin; Manufacturing Margin - Variable Selling and Administrative Expenses = Contribution Margin; Contribution Margin - (Fixed ManufacturingCosts + Fixed Selling and Administrative Expenses) = Income from OperationsLearning Objective 2 and Learning Objective 3.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 v and the fixed costs would not v be eliminated.Thus, the profit of the company would actually decline v by $Management should keep the line and attempt to improve the profitability of the productby increasing prices, increasing v volume, or reducing vcosts.

Calculation of Variable Cost of Goods Sold & Variable Selling and administrative expenses…

Winslow Inc. Product Income Statements-Absorption Costing For the Year Ended December 31, 20Y1 Cross Training Shoes Golf Shoes Running Shoes Revenues $351,800 $214,600 $178,100 Cost of goods sold 182,900 105,200 119,300 Gross profit $168,900 $109,400 $58,800 Selling and administrative expenses 145,300 78,800 98,200 Income (loss) from operations $23,600 $30,600 $(39,400) In addition, you have determined the following information with respect to allocated fixed costs: Cross Golf Running Training Shoes Shoes Shoes Fixed costs: Cost of goods sold $56,300 $27,900 $24,900 Selling and administrative expenses 42,200 25,800 24,900 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 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 $39,400. a. Are management's decision and conclusions correct? Management's decision and conclusion are incorrect v . The profit will not v be improved because the fixed costs used in manufacturing and selling running shoes will not v be avoided if the line is eliminated.

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q