Variable and Absorption Costing—Three Products Winslow Inc. manufactures and sel
ID: 2573389 • Letter: V
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:
In addition, you have determined the following information with respect to allocated fixed costs:
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 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 $61,300.
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.
b. Prepare a variable costing income statement for the three products. Enter a net loss as a negative number using a minus sign; enter all other amounts as positive numbers.
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 and the fixed costs be eliminated. Thus, the profit of the company would actually by $. Management should keep the line and attempt to improve the profitability of the product by prices, volume, or costs.
Check My Work
Previous
Next
Winslow Inc.Product Income Statements—Absorption Costing
For the Year Ended December 31, 20Y1 Cross Training Shoes Golf Shoes Running Shoes Revenues $514,200 $318,800 $277,400 Cost of goods sold 267,400 156,200 185,900 Gross profit $246,800 $162,600 $91,500 Selling and administrative expenses 212,200 117,100 152,800 Income (loss) from operations $34,600 $45,500 $(61,300)
Explanation / Answer
a. Management's decision and conclusion are incorrect. The profit would not be improved because the fixed costs used in manufacturing and selling running shoes would not be avoided if the line is eliminated.
b.
c. 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 decrease by $77,600. Management should keep the line and attempt to improve the profitability of the product by increasing prices, volume, or reducing costs.
Winslow Inc. Variable Costing Income Statements - Three Product Lines For the Year Ended December 31, 20Y1 Cross Training Shoes Golf Shoes Running Shoes Revenues 514200 318800 277400 Variable costs: Cost of goods sold 185100 114800 147100 Selling and administrative expenses 150500 78800 114000 Total variable costs 335600 193600 261100 Contribution margin 178600 125200 16300 Fixed costs: Cost of goods sold 82300 41400 38800 Selling and administrative expenses 61700 38300 38800 Total fixed costs 144000 79700 77600 Income from operations $ 34600 45500 -61300Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.