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Dirt Mountain Racing Bikes Total Bikes Bikes Sales $ 927,000 $269,000 $ 404,000 $ 254,000 Variable manufacturing and selling 472,000 111,000 201,000 160,000 expenses Contribution margin Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* Total fixed expenses 455,000 158,000 203,000 94,000 70,300 43,200 115,600 185,400 414,500 40,700 7,100 38,300 80,800 166,900 8,800 20,800 20,800 40,800 53,800 124,200 15,300 36,500 50,800 123,400 Net operating income (loss) $ 40,500 $ 33,800 $ 36,100 $(29,400) *Allocated on the basis of sales dollars. Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear out. Required: 1. What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes? 2. Should the production and sale of racing bikes be discontinued?

Dirt Mountain Racing Bikes Total Bikes Bikes Sales $ 927,000 $269,000 $ 404,000 $ 254,000 Variable manufacturing and selling 472,000 111,000 201,000 160,000 expenses Contribution margin Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* Total fixed expenses 455,000 158,000 203,000 94,000 70,300 43,200 115,600 185,400 414,500 40,700 7,100 38,300 80,800 166,900 8,800 20,800 20,800 40,800 53,800 124,200 15,300 36,500 50,800 123,400 Net operating income (loss) $ 40,500 $ 33,800 $ 36,100 $(29,400) *Allocated on the basis of sales dollars. Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear out. Required: 1. What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes? 2. Should the production and sale of racing bikes be discontinued?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Should the production and sale of racing bikes be discontinued?

Dirt Mountain Racing Total Bikes Bikes Bikes Sales $ 927,000 $269,000 $ 404,000 $ 254,000 Variable manufacturing and selling 472,000 111,000 201,000 160,000 expenses Contribution margin Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* Total fixed expenses 455,000 158,000 203,000 94,000 70,300 43,200 115,600 185,400 414,500 $ 40,500 53,800 124,200 $ 33,800 $ 36,100 $(29,400) 8,800 20,800 40,800 40,700 7,100 38,300 80,800 166,900 20,800 15,300 36,500 50,800 123,400 Net operating income (loss) *Allocated on the basis of sales dollars. Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear out. Required: 1. What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes? 2. Should the production and sale of racing bikes be discontinued? 3. Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes?
Transcribed Image Text:Dirt Mountain Racing Total Bikes Bikes Bikes Sales $ 927,000 $269,000 $ 404,000 $ 254,000 Variable manufacturing and selling 472,000 111,000 201,000 160,000 expenses Contribution margin Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* Total fixed expenses 455,000 158,000 203,000 94,000 70,300 43,200 115,600 185,400 414,500 $ 40,500 53,800 124,200 $ 33,800 $ 36,100 $(29,400) 8,800 20,800 40,800 40,700 7,100 38,300 80,800 166,900 20,800 15,300 36,500 50,800 123,400 Net operating income (loss) *Allocated on the basis of sales dollars. Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear out. Required: 1. What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes? 2. Should the production and sale of racing bikes be discontinued? 3. Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes?
Required 1 Required 2 Required 3 Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long- run profitability of the various product lines. Totals Dirt Bikes Mountain Bikes Racing Bikes Contribution margin (loss) Traceable fixed expenses: Total traceable fixed expenses Product line segment margin (loss) Net operating income (loss)
Transcribed Image Text:Required 1 Required 2 Required 3 Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long- run profitability of the various product lines. Totals Dirt Bikes Mountain Bikes Racing Bikes Contribution margin (loss) Traceable fixed expenses: Total traceable fixed expenses Product line segment margin (loss) Net operating income (loss)
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