1034 Chapter 20 Variable Costing for Management Analysis Obj. 2,3 EX 20-10 Variable and absorption costing-three products B. Cross Training Winslow Inc, manufactures and sells three types of shoes. The income statements prepared under noes, Income the absorption costing method for the three shoes are as follows: from operations, $348,000 Running Shoes Winslow Inc. Product Income Statements-Absorption Costing For the Year Ended December 31, 20Y1 Cross Training Shoes Golf Shoes $5,800,000 $6,900,000 Revenues ...... Cost of goods sold............... 3,016,000 3,381,000 Gross profit.............. $2,784,000 $3,519,000 Selling and administrative expenses .......... 2,436,000 2,484,000 Income from operations.. $ 348,000 $1,035,000 $4,200,000 2,814,000 $1,386,000 2,142,000 $(756,000) In addition, you have determined the following information with respect to allocated fixed costs: Cross Training Running Shoes Golf Shoes Shoes Fixed costs: Cost of goods sold .......... $928,000 $897,000 $798,000 Selling and administrative expenses. 696,000 828,000 588,000 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 $756,000. A. Do you agree with management's decision and conclusions? Explain your answer B. Prepare a variable costing income statement for the three products. Use the report in (1) to determine the profit impact of eliminating the running shoe line, assuming no other changes. C