Answer:
Winslow Inc.
a. I do not agree with management's decision and conclusions. Before the elimination of the Running Shoes Department, the company recorded a total net profit of $7,900. After the elimination, the company recorded a total net loss of $112,600.
b. Variable Costing Income Statement for the three products:
Winslow Inc. Product Income Statements—Variable Costing For the Year Ended December 31, 20Y1
1 Cross Training Golf Shoes Running
Shoes Shoes
2. Revenues $850,000 $700,000 $635,000
3. Variable Costs:
Cost of goods sold 284,500 248,400 298,500
Selling & admin. expenses 293,100 175,500 216,000
Total variable costs 577,600 423,900 514,500
4. Contribution margin $272,400 $276,100 $120,500
5. Fixed Costs:
Cost of goods sold 128,500 90,300 120,500
Selling and admin. exp. 95,900 82,400 143,500
Total fixed costs 224,400 172,700 264,000
6. Income (Loss) from
operations $48,000 $103,400 ($143,500) $7,900
c. The impact of eliminating the running shoe line is the increase of the net operating loss from a net profit of $7,900 to $112, 600.
Explanation:
a) Data and Calculations:
Winslow Inc. Product Income Statements—Absorption Costing For the Year Ended December 31, 20Y1
1 Cross Training Golf Shoes Running
Shoes Shoes
2. Revenues $850,000.00 $700,000.00 $635,000.00
3. Cost of goods sold 413,000.00 338,700.00 419,000.00
4. Gross profit $437,000.00 $361,300.00 $216,000.00
5. Selling and
administrative expenses 389,000.00 257,900.00 359,500.00
6. Income (Loss) from
operations $48,000.00 $103,400.00 ($143,500.00)
1 Cross Training Golf Shoes Running
Shoes Shoes
2. Revenues $850,000 $700,000 $635,000
3. Cost of goods sold
Variable cost 284,500 248,400 298,500
Fixed cost 128,500 90,300 120,500
Total cost of goods sold 413,000 338,700 419,000
4. Gross profit $437,000 $361,300 $216,000
5. Selling and
administrative expenses
Variable cost 293,100 175,500 216,000
Fixed cost 95,900 82,400 143,500
Total selling & admin. 389,000 257,900 359,500
6. Income (Loss) from
operations $48,000 $103,400 ($143,500) $7,900
Elimination of the Running Shoes Department:
1 Cross Training Golf Shoes Total
Shoes
2. Revenues $850,000 $700,000 $1,550,000
3. Cost of goods sold
Variable cost 284,500 248,400 532,900
Fixed cost 128,500 90,300 339,300
Total cost of goods sold 413,000 338,700 872,200
4. Gross profit $437,000 $361,300 $677,800
5. Selling and
administrative expenses
Variable cost 293,100 175,500 468,600
Fixed cost 95,900 82,400 321,800
Total selling & admin. 389,000 257,900 790,400
6. Income (Loss) from
operations $48,000 $103,400 ($112,600)