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 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 $5,800,000 $6,900,000 $4,200,000

Cost of goods sold (3,016,000) (3,381,000) (2,814,000)

Gross profit $2,784,000 $3,519,000 $1,386,000

Selling and administrative expenses (2,436,000) (2,484,000) (2,142,000)

Operating income $348,000 $1,035,000 $(756,000)

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 $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. 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.

Feedback

Consider the impact the elimination of the running shoe line would have on the fixed costs.

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

$Revenues $Revenues $Revenues

Variable cost of goods sold Variable cost of goods sold Variable cost of goods sold

$Manufacturing margin $Manufacturing margin $Manufacturing margin

Variable selling and administrative expenses Variable selling and administrative expenses Variable selling and administrative expenses

$Contribution margin $Contribution margin $Contribution margin

Fixed costs:

$Fixed manufacturing costs $Fixed manufacturing costs $Fixed manufacturing costs

Fixed selling and administrative expenses Fixed selling and administrative expenses Fixed selling and administrative expenses

Total fixed costs $fill in the blank 079a5af6bfd9077_29 $fill in the blank 079a5af6bfd9077_30 $fill in the blank 079a5af6bfd9077_31

Operating income (loss) $fill in the blank 079a5af6bfd9077_32 $fill in the blank 079a5af6bfd9077_33 $fill in the blank 079a5af6bfd9077_34

Feedback

c. Use the report in (b) to determine the profit impact of eliminating the running shoe line, assuming no other changes.

If the running shoe 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 $fill in the blank ee05bbfcffb105d_4. Management should keep the line and attempt to improve the profitability of the product by

prices,

volume, or

costs.

Comment: Hello I have been struggling with the box in part C

Transcribed Image Text: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 5,800,000 V Revenues 6,900,000 4,200,000 V Variable cost of goods sold 2,088,000 2,484,000 2,016,000 Manufacturing margin 4,416,000V 3,712,000 2,184,000 Variable selling and administrative expenses 1,656,000 V 1,740,000 1,554,000 Contribution margin 2,760,000 V 1,972,000 630,000 Fixed costs: Fixed manufacturing costs 928,000 897,000 798,000 Fixed selling and administrative expenses 696,000 828,000 588,000 Total fixed costs 1,624,000 1,725,000 1,386,000 Operating income (loss) 348,000 1,035,000 V -756,000 Feedback c. Use the report in (b) to determine the profit impact of eliminating the running shoe line, assuming no other changes. If the running shoe line were eliminated, then the contribution margin of the product line would be eliminated and the fixed costs would not v be eliminated. Thus, the profit of the company would actually decline X. Management should keep the line and attempt to improve the profitability of the product by increasing v costs. by $ prices, increasing volume, or reducing
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 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 $5,800,000 $6,900,000 $4,200,000 Cost of goods sold (3,016,000) (3,381,000) (2,814,000) Gross profit $2,784,000 $3,519,000 $1,386,000 Selling and administrative expenses (2,436,000) (2,484,000) (2,142,000) Operating income $348,000 $1,035,000 $(756,000) 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 $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. Are management's decision and conclusions correct? V. The profit will not v be avoided if the line is eliminated. Management's decision and conclusion are incorrect be improved because the fixed costs used in manufacturing and selling running shoes will not

Question

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 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	$5,800,000		$6,900,000	$4,200,000
Cost of goods sold	(3,016,000)		(3,381,000)	(2,814,000)
Gross profit	$2,784,000		$3,519,000	$1,386,000
Selling and administrative expenses	(2,436,000)		(2,484,000)	(2,142,000)
Operating income	$348,000		$1,035,000	$(756,000)

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	$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. 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.

Feedback

Consider the impact the elimination of the running shoe line would have on the fixed costs.

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
	$Revenues	$Revenues	$Revenues
	Variable cost of goods sold	Variable cost of goods sold	Variable cost of goods sold
	$Manufacturing margin	$Manufacturing margin	$Manufacturing margin
	Variable selling and administrative expenses	Variable selling and administrative expenses	Variable selling and administrative expenses
	$Contribution margin	$Contribution margin	$Contribution margin
Fixed costs:
	$Fixed manufacturing costs	$Fixed manufacturing costs	$Fixed manufacturing costs
	Fixed selling and administrative expenses	Fixed selling and administrative expenses	Fixed selling and administrative expenses
Total fixed costs	$fill in the blank 079a5af6bfd9077_29	$fill in the blank 079a5af6bfd9077_30	$fill in the blank 079a5af6bfd9077_31
Operating income (loss)	$fill in the blank 079a5af6bfd9077_32	$fill in the blank 079a5af6bfd9077_33	$fill in the blank 079a5af6bfd9077_34

Feedback

c. Use the report in (b) to determine the profit impact of eliminating the running shoe line, assuming no other changes.

If the running shoe 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 $fill in the blank ee05bbfcffb105d_4. Management should keep the line and attempt to improve the profitability of the product by

prices,

volume, or

costs.

Comment: Hello I have been struggling with the box in part C

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
5,800,000 V
Revenues
6,900,000
4,200,000 V
Variable cost of goods sold
2,088,000
2,484,000
2,016,000
Manufacturing margin
4,416,000V
3,712,000
2,184,000
Variable selling and administrative expenses
1,656,000 V
1,740,000
1,554,000
Contribution margin
2,760,000 V
1,972,000
630,000
Fixed costs:
Fixed manufacturing costs
928,000
897,000
798,000
Fixed selling and administrative expenses
696,000
828,000
588,000
Total fixed costs
1,624,000
1,725,000
1,386,000
Operating income (loss)
348,000
1,035,000 V
-756,000
Feedback
c. Use the report in (b) to determine the profit impact of eliminating the running shoe line, assuming no other changes.
If the running shoe line were eliminated, then the contribution margin of the product line would be eliminated
and the
fixed costs would not
v be eliminated. Thus, the profit of the company would actually decline
X. Management should keep the line and attempt to improve the profitability of the product by increasing
v costs.
by $
prices, increasing
volume, or reducing

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 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
$5,800,000
$6,900,000
$4,200,000
Cost of goods sold
(3,016,000)
(3,381,000)
(2,814,000)
Gross profit
$2,784,000
$3,519,000
$1,386,000
Selling and administrative expenses
(2,436,000)
(2,484,000)
(2,142,000)
Operating income
$348,000
$1,035,000
$(756,000)
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
$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. Are management's decision and conclusions correct?
V. The profit will not
v be avoided if the line is eliminated.
Management's decision and conclusion are incorrect
be improved because the fixed costs
used in manufacturing and selling running shoes will not

Accepted Answer

Solution c:
If the running shoes line were eliminated, then the contribution margin of the product…

Fixed costs: Fixed manufacturing costs 897,000 928,000 798,000 Fixed selling and administrative expenses 696,000 828,000 588,000 Total fixed costs 1,624,000 1,725,000 1,386,000