A)

a. Are management’s decision and conclusions correct?

Management’s decision and conclusion are INCORRECT . The profit WILL NOT be improved because the fixed costs used in ma
and selling running shoes WILL NOT be avoided if the line is eliminated.

B)

WINSLOW INC
VARIABLE COSTING INCOME STATEMENT- THREE PRODUCT LINES
FOR YEAR ENDING DECEMBER 31, 2011
DESCRIPTION ITEMS CROSS TRAINING SHOES
SALES $ 411,100
VARIABLE COST OF GOODS SOLD $ 148,000
MANUFACTURE MARGIN $ 263,100
VARIABLE SELLING AND ADMINISTRATIVE EXPENSES $ 120,400
CONTRIBUTION MARGIN $ 142,700
LESS FIXED COST
FIXED MANUFACTURING COST $ 65,800
FIXED SELLING AND ADMINISTRATIVE EXPENSES $ 49,300
TOTAL FIXED COST $ 115,100
INCOME FROM OPERATIONS $ 27,600

C)
iF the running shoe line were eliminated, then the contribution margin of the product line would be eliminated
and fixed cost will not be eliminated. Therefore, the profit of the company would actually decline $11,900
Management should keep the line and attempt to improve the profitablility of the product by increasing prices,
increasing volume or reducing costs.

Working

VARIABLE COST OF GOODS SOLD 213800-65800

VARIABLE SELLING AND ADMINISTRATIVE EXPENSES 169700-49300
ause the fixed costs used in manufacturing

revenues
cogs
gp
selling
income

fg
GULF SHOES RUNNING SHOES cog
$ 234,300 $ 203,800 selling
$ 84,300 $ 108,000
$ 150,000 $ 95,800 profit to inc
$ 57,900 $ 83,900
$ 92,100 $ 11,900

$ 30,500 $ 28,500
$ 28,100 $ 28,500
$ 58,600 $ 57,000
$ 33,500 $ (45,100)

ld be eliminated

ncreasing prices,

114800-30500 136500-28500
86000-28100 112400-28500
CROSS TRAINING SHOES GULF SHOES RUNNING SHOES
411100 234300 203800
213800 114800 136500
197300 119500 67300
169700 86000 112400
27600 33500 -45100

65800 30500 28500

49300 28100 28500

45100