Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: Advertising, traceable. Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* Total fixed expenses Total $ 929,000 478,000 Net operating income (loss) "Allocated on the basis of sales dollars. 451,000 $ 266,000 110,000 156,000 Dirt Bikes Mountain Bikes $ 408,000 209,000 Racing Bikes $ 255,000 159,000 199,000 96,000 69,400 8,600 40,300 20,500 43,800 20,600 7,300 15,900 115,500 40,100 38,700 36,700 185,800 53,200 81,600 51,000 414,500 122,500 167,900 124,100 $ 36,500 $ 33,500 $ 31,100 $ (28,100) 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.
Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: Advertising, traceable. Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* Total fixed expenses Total $ 929,000 478,000 Net operating income (loss) "Allocated on the basis of sales dollars. 451,000 $ 266,000 110,000 156,000 Dirt Bikes Mountain Bikes $ 408,000 209,000 Racing Bikes $ 255,000 159,000 199,000 96,000 69,400 8,600 40,300 20,500 43,800 20,600 7,300 15,900 115,500 40,100 38,700 36,700 185,800 53,200 81,600 51,000 414,500 122,500 167,900 124,100 $ 36,500 $ 33,500 $ 31,100 $ (28,100) 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Rahul
Transcribed Image Text:Sales
Variable manufacturing and selling expenses
Contribution margin
Fixed expenses:
Advertising, traceable.
Depreciation of special equipment
Salaries of product-line managers
Allocated common fixed expenses*
Total fixed expenses
Total
$ 929,000
478,000
Net operating income (loss)
"Allocated on the basis of sales dollars.
451,000
$ 266,000
110,000
156,000
Dirt Bikes
Mountain
Bikes
$ 408,000
209,000
Racing Bikes
$ 255,000
159,000
199,000
96,000
69,400
8,600
40,300
20,500
43,800
20,600
7,300
15,900
115,500
40,100
38,700
36,700
185,800
53,200
81,600
51,000
414,500
122,500
167,900
124,100
$ 36,500
$ 33,500
$ 31,100 $ (28,100)
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.
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