c. Use the report in (b) to determine the profit impact of eliminating the runni
ID: 2557399 • Letter: C
Question
c. Use the report in (b) to determine the profit impact of eliminating the running shoes 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 would not be eliminated. Thus, the profit of the company would actually decline by_________________ $. Management should keep the line and attempt to improve the profitability of the product by increasing prices, increasing volume, or reducing costs.
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 Cost of goods sold Gross profit Selling and administrative expenses Income (loss) from operations In addition, you have determined the following information with respect to allocated fixed costs: $436,400 226,900 $209,500 180,200 $29,300 $261,800 128,300 $133,500 96,100 $37,400 $227,800 152,600 $75,200 125,600 $(50,400) Cross Training Shoes Golf Running Shoes Shoes Fixed costs: Cost of goods sold $69,800 $34,000 $31,900 Selling and administrative expenses 52,400 31,400 31,900 These fixed costs are used to support all three product lines. In addition, you have determined that the inventory is negligibleExplanation / Answer
cross Golf Running training shoes shoes cost of goods sold Variable 157,100 94300 120700 fixed 69,800 34000 31900 total 226,900 128300 152600 Selling and administrative expense Variable 127,800 64,700 93,700 fixed 52,400 31,400 31,900 total 180,200 96100 125600 cross Golf Running training shoes shoes Revenues 436,400 261,800 227,800 variable cost of goods sold 157,100 94300 120700 manufacturing margin 279,300 167,500 107,100 variable selling & adm expense 127,800 64,700 93,700 Contribution margin 151,500 102,800 13,400 267,700 Fixed costs: fixed manufacturing costs 69,800 34000 31900 135,700 fixed selling & adm expense 52,400 31,400 31,900 115,700 total fixed costs 122,200 65,400 63,800 251,400 income from operations 29,300 37,400 -50,400 16,300 c) contribution margin 267,700 254,300 -13,400 total fixed cost 251,400 251,400 0 net operating income 16,300 2,900 -13,400 decline by 13400 answer
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