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 $378,600 $227,200 $188,600 Cost of goods sold (196,900) (111,300) (126,400) Gross profit $181,700 $115,900 $62,200 Selling and administrative expenses (156,300) (83,400) (103,900) Operating income $25,400 $32,500 $(41,700) 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 $60,600 $29,500 $26,400 Selling and administrative expenses 45,400 27,300 26,400 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 $41,700. Question Content Area 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 Area Feedback Consider the impact the elimination of the running shoe line would have on the fixed costs. Question Content Area 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 LinesFor 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 48ca22f95033018_29 $fill in the blank 48ca22f95033018_30 $fill in the blank 48ca22f95033018_31 Operating income (loss) $fill in the blank 48ca22f95033018_32 $fill in the blank 48ca22f95033018_33 $fill in the blank 48ca22f95033018_34 Feedback Area Feedback When recasting the variable costing income statement, remember that under variable costing, all fixed factory overhead costs are deducted in the period incurred. Revenues - Variable Cost of Goods Sold = Manufacturing Margin; Manufacturing Margin - Variable Selling and Administrative Expenses = Contribution Margin; Contribution Margin - (Fixed Manufacturing Costs + Fixed Selling and Administrative Expenses) = Operating income Question Content Area c. 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 and the fixed costs be eliminated. Thus, the profit of the company would actually by $fill in the blank 5712df0af068fcf_4. Management should keep the line and attempt to improve the profitability of the product by prices,

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 $378,600 $227,200 $188,600 Cost of goods sold (196,900) (111,300) (126,400) Gross profit $181,700 $115,900 $62,200 Selling and administrative expenses (156,300) (83,400) (103,900) Operating income $25,400 $32,500 $(41,700) 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 $60,600 $29,500 $26,400 Selling and administrative expenses 45,400 27,300 26,400 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 $41,700. Question Content Area 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 Area Feedback Consider the impact the elimination of the running shoe line would have on the fixed costs. Question Content Area 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 LinesFor 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 48ca22f95033018_29 $fill in the blank 48ca22f95033018_30 $fill in the blank 48ca22f95033018_31 Operating income (loss) $fill in the blank 48ca22f95033018_32 $fill in the blank 48ca22f95033018_33 $fill in the blank 48ca22f95033018_34 Feedback Area Feedback When recasting the variable costing income statement, remember that under variable costing, all fixed factory overhead costs are deducted in the period incurred. Revenues - Variable Cost of Goods Sold = Manufacturing Margin; Manufacturing Margin - Variable Selling and Administrative Expenses = Contribution Margin; Contribution Margin - (Fixed Manufacturing Costs + Fixed Selling and Administrative Expenses) = Operating income Question Content Area c. 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 and the fixed costs be eliminated. Thus, the profit of the company would actually by $fill in the blank 5712df0af068fcf_4. Management should keep the line and attempt to improve the profitability of the product by prices,

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 58P: Cost of Goods Manufactured, Income Statement W. W. Phillips Company produced 4,000 leather recliners...

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Question Content Area

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 Area

Feedback

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

Question Content Area

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 LinesFor 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 48ca22f95033018_29	$fill in the blank 48ca22f95033018_30	$fill in the blank 48ca22f95033018_31
Operating income (loss)	$fill in the blank 48ca22f95033018_32	$fill in the blank 48ca22f95033018_33	$fill in the blank 48ca22f95033018_34

Feedback Area

Feedback

When recasting the variable costing income statement, remember that under variable costing, all fixed factory overhead costs are deducted in the period incurred. Revenues - Variable Cost of Goods Sold = Manufacturing Margin; Manufacturing Margin - Variable Selling and Administrative Expenses = Contribution Margin; Contribution Margin - (Fixed Manufacturing Costs + Fixed Selling and Administrative Expenses) = Operating income

Question Content Area

c. 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

and the fixed costs

be eliminated. Thus, the profit of the company would actually

by $fill in the blank 5712df0af068fcf_4. Management should keep the line and attempt to improve the profitability of the product by

prices,

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Winslow Inc. Product Income Statements—Absorption Costing For the Year Ended December 31, 20Y1
	Cross Training Shoes	Golf Shoes	Running Shoes
Revenues	$378,600		$227,200	$188,600
Cost of goods sold	(196,900)		(111,300)	(126,400)
Gross profit	$181,700		$115,900	$62,200
Selling and administrative expenses	(156,300)		(83,400)	(103,900)
Operating income	$25,400		$32,500	$(41,700)