Chapter 21 Homework (Application) eBook Variable and Absorption Casting-Three Products 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, 201 Cross Training Shoes Golf Shoes Running Shoes Revenues $415,500 $245,100 $210,800 Cost of goods sold (216,100) (120,100) (141,200) Gross profit $199,400 $125,000 $69,600 Selling and administrative expenses (171,500) (90,000) (116,200) Operating Income $27,900 $35,000 $(46,600) In addition, you have determined the following information with respect to allocated fixed costs Cross Training Shoes Golf Running Shoes Shoes Fixed costs Cost of goods sold Selling and administrative expenses $66,500 $31,900 $29,500 49,900 29,400 29,500 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 $46,600 a. Are management's decision and conclusions corect? Management's decision and conclusion are incorrect The profit will not be improved because the fixed costs used in manufacturing and seling running shoes will not be avoided if the Chapter 21 Homework (Application) book b. Prepare a vantable cesting income statement for the three products. Enter a net loss as a negative number using a minin Winslow Inc. Variable Costing Income Statements-Three Product Lines For the Year Ended December 31, 2011 Cross Training Shoes Golf Shoes Running Shoes Handfacturing macon Fixed costs Fixed seling and adminstrative extemes Total fixed costs Operating income (s) 10000 000000 10000 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 be eliminated and the fixed costs uld not actually decline Management should keep the line and attempt to improve the profitability of the product by increasing Check My Work 5 more Check My Weaning be eliminated. Thus, the profit of the company would one or prices, increasing Previous Next Suns Augment for Grading