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Variable and Absorption Costing-Three Products Winsiow Inc. manufactures and sels 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 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 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 deemod the profit performance of the running shoe line as unacceptable. As a result, it has decided to elminate the running shoe: 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 resuit, z has decided to eliminate the running shoe line. Management does not expect to be able to increase sales in the other two lines. Howevec, as a result of eliminating the running shoe line, managament expects the proniss of the company to increase by $44,500. 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 seing running shoes be avoided if the line is efiminated. Feedback 7 Check Mr Wosk Consider the impact the elimination of the running shoe line would have on the fixed costs. b. Prepare a variable costing income statement for the three products. Enter a net loss as a negative number using a minus sign: " Check My Work When recosting the variable costing income statement, remember that under variable costing, all foxed factory overhead costs are deducted in the period incurred. Revenues - Variable Cost of Goods Sold = Manufacturing Margin; Manufacturing Margin - Variable Selling and Adminstrative Expenses = Contribution Margin; Contribution Margin - (Fixed Manufacturing Costs + Fixed Seling and Administrative Expenses) = Operating income 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 eliminated. Thus, the profit of the company would actually Management should keep the line and attempt to improve the profitability of the product by prices, volume, or costs