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 Net operating income (loss) Total $ 927,000 Dirt Bikes $ 269,000 Mountain Bikes $ 401,000 205,000 Racing Bikes $ 257,000 478,000 120,000 153,000 449,000 149,000 196,000 104,000 70,400 9,000 40,700 20,700 43,400 20,300 7,900 15,200 116,000 40,800 38,500 36,700 185,400 53,800 80,200 51,400 415,200 123,900 167,300 124,000 $ 33,800 $ 25,100 $ 28,700 $ (20,000) *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.
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 Net operating income (loss) Total $ 927,000 Dirt Bikes $ 269,000 Mountain Bikes $ 401,000 205,000 Racing Bikes $ 257,000 478,000 120,000 153,000 449,000 149,000 196,000 104,000 70,400 9,000 40,700 20,700 43,400 20,300 7,900 15,200 116,000 40,800 38,500 36,700 185,400 53,800 80,200 51,400 415,200 123,900 167,300 124,000 $ 33,800 $ 25,100 $ 28,700 $ (20,000) *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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
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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
$ 927,000
478,000
449,000
Dirt Bikes
$ 269,000
120,000
Mountain
Bikes
$ 401,000
205,000
Racing Bikes
$ 257,000
153,000
104,000
149,000
196,000
70,400
9,000
40,700
20,700
43,400
20,300
7,900
15,200
116,000
40,800
38,500
36,700
185,400
53,800
80,200
51,400
415,200
123,900
167,300
124,000
$ 33,800
$ 25,100
$ 28,700
$ (20,000)
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?
Financial (disadvantage) per quarter
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