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.
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.
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter2: Basic Managerial Accounting Concepts
Section: Chapter Questions
Problem 26BEA
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