Question

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	$435,600		$248,300		$208,600
Cost of goods sold	(226,500)		(121,700)		(139,800)
Gross profit	$209,100		$126,600		$68,800
Selling and administrative expenses	(179,800)		(91,200)		(114,900)
Operating income	$29,300		$35,400		$(46,100)

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	$69,700		$32,300		$29,200
Selling and administrative expenses	52,300		29,800		29,200

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 $46,100.

a. Are management’s decision and conclusions correct?

Management’s decision and conclusion are  . The profit   be improved because the fixed costs used in manufacturing and selling running shoes   be avoided if the line is eliminated.

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	Running Shoes
	$	$	$
	$	$	$
	$	$	$
Fixed costs:
	$	$	$
Total fixed costs	$	$	$
Operating income (loss)	$	$	$

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

Answer 1

a)	managements decision and conclusion are incorrect .The profit will not be improved
	because the fixed costs used in manufacturing and sellling running shoes will not be avoided
	if the line is eliminated
				cross	Golf	Running
				training	shoes	shoes
	cost of goods sold
	Variable			156,800	89400	110600
	fixed			69,700	32300	29200
	total			226,500	121700	139800
	Selling and administrative expense
	Variable			127,500	61,400	85,700
	fixed			52,300	29,800	29,200
	total			179,800	91200	114900
b)				cross	Golf	Running
				training	shoes	shoes
	Revenues			435,600	248,300	208,600
	variable cost of goods sold			156,800	89400	110600
	manufacturing margin			278,800	158,900	98,000
	variable selling & adm expense			127,500	61,400	85,700
	Contribution margin			151,300	97,500	12,300	261,100
	Fixed costs:
	fixed manufacturing costs			69,700	32300	29200	131,200
	fixed selling & adm expense			52,300	29,800	29,200	111,300
	total fixed costs			122,000	62,100	58,400	242,500
	income from operations			29,300	35,400	-46,100	18,600
c)	contribution margin			261,100	248,800	-12,300
	total fixed cost			242,500	242,500	0
	net operating income			18,600	6,300	-12,300
	decline by 12300		answer
	if the running shoe line were eliminated then the contribution margin of the product
	line would be eliminated and fixed cost would not be eliminated .thus the profit of the
	company would actually decline by				12,300	Management should keep the
	line and attempt to improve the profitability of the product by increasing prices ,increasing
	volume or reducing costs