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 $381,800 $217,600 $189,300 Cost of goods sold (198,500) (106,600) (126,800) Gross profit $183,300 $111,000 $62,500 Selling and administrative expenses (157,600) (79,900) (104,400) Operating income $25,700 $31,100 $(41,900) 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 $61,100 $28,300 $26,500 Selling and administrative expenses 45,800 26,100 26,500 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 $41,900. 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. Winslow Inc. Variable Costing Income Statements—Three Product Lines For the Year Ended December 31, 20Y1 Cross Training Shoes Golf Shoes Running Shoes $fill in the blank 8174b7f26fca07a_2 $fill in the blank 8174b7f26fca07a_3 $fill in the blank 8174b7f26fca07a_4 fill in the blank 8174b7f26fca07a_6 fill in the blank 8174b7f26fca07a_7 fill in the blank 8174b7f26fca07a_8 $fill in the blank 8174b7f26fca07a_10 $fill in the blank 8174b7f26fca07a_11 $fill in the blank 8174b7f26fca07a_12 fill in the blank 8174b7f26fca07a_14 fill in the blank 8174b7f26fca07a_15 fill in the blank 8174b7f26fca07a_16 $fill in the blank 8174b7f26fca07a_18 $fill in the blank 8174b7f26fca07a_19 $fill in the blank 8174b7f26fca07a_20 Fixed costs: $fill in the blank 8174b7f26fca07a_22 $fill in the blank 8174b7f26fca07a_23 $fill in the blank 8174b7f26fca07a_24 fill in the blank 8174b7f26fca07a_26 fill in the blank 8174b7f26fca07a_27 fill in the blank 8174b7f26fca07a_28 Total fixed costs $fill in the blank 8174b7f26fca07a_29 $fill in the blank 8174b7f26fca07a_30 $fill in the blank 8174b7f26fca07a_31 Operating income (loss) $fill in the blank 8174b7f26fca07a_32 $fill in the blank 8174b7f26fca07a_33 $fill in the blank 8174b7f26fca07a_34 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 $___________. Management should keep the line and attempt to improve the profitability of the product by _________ prices, _________ volume, or ___________ costs.

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 $381,800 $217,600 $189,300 Cost of goods sold (198,500) (106,600) (126,800) Gross profit $183,300 $111,000 $62,500 Selling and administrative expenses (157,600) (79,900) (104,400) Operating income $25,700 $31,100 $(41,900) 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 $61,100 $28,300 $26,500 Selling and administrative expenses 45,800 26,100 26,500 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 $41,900. 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. Winslow Inc. Variable Costing Income Statements—Three Product Lines For the Year Ended December 31, 20Y1 Cross Training Shoes Golf Shoes Running Shoes $fill in the blank 8174b7f26fca07a_2 $fill in the blank 8174b7f26fca07a_3 $fill in the blank 8174b7f26fca07a_4 fill in the blank 8174b7f26fca07a_6 fill in the blank 8174b7f26fca07a_7 fill in the blank 8174b7f26fca07a_8 $fill in the blank 8174b7f26fca07a_10 $fill in the blank 8174b7f26fca07a_11 $fill in the blank 8174b7f26fca07a_12 fill in the blank 8174b7f26fca07a_14 fill in the blank 8174b7f26fca07a_15 fill in the blank 8174b7f26fca07a_16 $fill in the blank 8174b7f26fca07a_18 $fill in the blank 8174b7f26fca07a_19 $fill in the blank 8174b7f26fca07a_20 Fixed costs: $fill in the blank 8174b7f26fca07a_22 $fill in the blank 8174b7f26fca07a_23 $fill in the blank 8174b7f26fca07a_24 fill in the blank 8174b7f26fca07a_26 fill in the blank 8174b7f26fca07a_27 fill in the blank 8174b7f26fca07a_28 Total fixed costs $fill in the blank 8174b7f26fca07a_29 $fill in the blank 8174b7f26fca07a_30 $fill in the blank 8174b7f26fca07a_31 Operating income (loss) $fill in the blank 8174b7f26fca07a_32 $fill in the blank 8174b7f26fca07a_33 $fill in the blank 8174b7f26fca07a_34 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 $_. Management should keep the line and attempt to improve the profitability of the product by _ prices, _ volume, or _______ costs.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 22E: Total cost method of product pricing Based on the data presented in Exercise 17, assume that Smart...

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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	$381,800		$217,600	$189,300
Cost of goods sold	(198,500)		(106,600)	(126,800)
Gross profit	$183,300		$111,000	$62,500
Selling and administrative expenses	(157,600)		(79,900)	(104,400)
Operating income	$25,700		$31,100	$(41,900)

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	$61,100		$28,300	$26,500
Selling and administrative expenses	45,800		26,100	26,500

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 $41,900.

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.

Winslow Inc.
Variable Costing Income Statements—Three Product Lines
For the Year Ended December 31, 20Y1
	Cross Training Shoes	Golf Shoes	Running Shoes
	$fill in the blank 8174b7f26fca07a_2	$fill in the blank 8174b7f26fca07a_3	$fill in the blank 8174b7f26fca07a_4
	fill in the blank 8174b7f26fca07a_6	fill in the blank 8174b7f26fca07a_7	fill in the blank 8174b7f26fca07a_8
	$fill in the blank 8174b7f26fca07a_10	$fill in the blank 8174b7f26fca07a_11	$fill in the blank 8174b7f26fca07a_12
	fill in the blank 8174b7f26fca07a_14	fill in the blank 8174b7f26fca07a_15	fill in the blank 8174b7f26fca07a_16
	$fill in the blank 8174b7f26fca07a_18	$fill in the blank 8174b7f26fca07a_19	$fill in the blank 8174b7f26fca07a_20
Fixed costs:
	$fill in the blank 8174b7f26fca07a_22	$fill in the blank 8174b7f26fca07a_23	$fill in the blank 8174b7f26fca07a_24
	fill in the blank 8174b7f26fca07a_26	fill in the blank 8174b7f26fca07a_27	fill in the blank 8174b7f26fca07a_28
Total fixed costs	$fill in the blank 8174b7f26fca07a_29	$fill in the blank 8174b7f26fca07a_30	$fill in the blank 8174b7f26fca07a_31
Operating income (loss)	$fill in the blank 8174b7f26fca07a_32	$fill in the blank 8174b7f26fca07a_33	$fill in the blank 8174b7f26fca07a_34

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 $___________. Management should keep the line and attempt to improve the profitability of the product by _________ prices, _________ volume, or ___________ costs.

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