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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 StatementsAbsorption Costing For the Year Ended December 31, 20Y1
	Cross Training Shoes		Golf Shoes		Running Shoes
Revenues	$419,900		$243,500		$209,400
Cost of goods sold	(218,300)		(119,300)		(140,300)
Gross profit	$201,600		$124,200		$69,100
Selling and administrative expenses	(173,400)		(89,400)		(115,400)
Operating income	$28,200		$34,800		$(46,300)

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	$67,200		$31,700		$29,300
Selling and administrative expenses	50,400		29,200		29,300

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 $46,300.

a. Are managements decision and conclusions correct?

Managements decision and conclusion are incorrect . The profit will not be improved because the fixed costs used in manufacturing and selling running shoes will not 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 StatementsThree Product Lines
For the Year Ended December 31, 20Y1
	Cross Training Shoes	Golf Shoes	Running Shoes
Revenues	$fill in the blank d59ba007cfeb042_2	$fill in the blank d59ba007cfeb042_3	$fill in the blank d59ba007cfeb042_4
Variable cost of goods sold	fill in the blank d59ba007cfeb042_6	fill in the blank d59ba007cfeb042_7	fill in the blank d59ba007cfeb042_8
Manufacturing margin	$fill in the blank d59ba007cfeb042_10	$fill in the blank d59ba007cfeb042_11	$fill in the blank d59ba007cfeb042_12
Variable selling and administrative expenses	fill in the blank d59ba007cfeb042_14	fill in the blank d59ba007cfeb042_15	fill in the blank d59ba007cfeb042_16
Contribution margin	$fill in the blank d59ba007cfeb042_18	$fill in the blank d59ba007cfeb042_19	$fill in the blank d59ba007cfeb042_20
Fixed costs:
Fixed manufacturing costs	$fill in the blank d59ba007cfeb042_22	$fill in the blank d59ba007cfeb042_23	$fill in the blank d59ba007cfeb042_24
Fixed selling and administrative expenses	fill in the blank d59ba007cfeb042_26	fill in the blank d59ba007cfeb042_27	fill in the blank d59ba007cfeb042_28
Total fixed costs	$fill in the blank d59ba007cfeb042_29	$fill in the blank d59ba007cfeb042_30	$fill in the blank d59ba007cfeb042_31
Operating income (loss)	$fill in the blank d59ba007cfeb042_32	$fill in the blank d59ba007cfeb042_33	$fill in the blank d59ba007cfeb042_34

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

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 be eliminated and the fixed costs would not be eliminated. Thus, the profit of the company would actually decline by $fill in the blank 9dbae1ff4fc4038_4. Management should keep the line and attempt to improve the profitability of the product by increasing prices, increasing volume, or reducing costs.

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