Winslow Inc. manufactures and sells three types of shoes. The income statements

Question

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 $40,700.

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.

Winslow Inc.
Product Income Statements—Absorption Costing
For the Year Ended December 31, 20Y1 Cross Training Shoes Golf Shoes Running Shoes Revenues $357,800 $221,800 $184,100 Cost of goods sold 186,100 108,700 123,300 Gross profit $171,700 $113,100 $60,800 Selling and administrative expenses 147,700 81,400 101,500 Income (loss) from operations $24,000 $31,700 $(40,700)

Explanation / Answer

Answer

Winslow Inc.

Variable Costing Income Statements—Three Product Lines

For the Year Ended December 31, 20Y1

Cross Training Shoes

Golf Shoes

Running Shoes

Revenues

$357800

$221800

$184100

(-) Variable cost of goods sold

$128900

$79900

$97500

Manufacturing margin

$228900

$141900

$86600

(-) Variable selling and administrative expenses

$104800

$54800

$75700

Contribution margin

$124,100

$87,100

$10,900

Winslow Inc.

Variable Costing Income Statements—Three Product Lines

For the Year Ended December 31, 20Y1

Cross Training Shoes

Golf Shoes

Running Shoes

Revenues

$357800

$221800

$184100

(-) Variable cost of goods sold

$128900

$79900

$97500

Manufacturing margin

$228900

$141900

$86600

(-) Variable selling and administrative expenses

$104800

$54800

$75700

Contribution margin

$124,100

$87,100

$10,900

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