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Sales Variable manufacturing and selling expenses Contribution margin Total $ 930,000 472,000 458,000 Dirt Bikes $ 265,000 115,000 150,000 69,000 43,300 116,000 186,000 414,300 $ 43,700 Mountain Bikes $ 410,000 204,000 206,000 Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* Total fixed expenses 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. 8,200 20,300 40,700 53,000 122,200 $ 27,800 40,400 7,600 38,300 82,000 168,300 $ 37,700 Racing Bikes $ 255,000 153,000 102,000 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? 20,400 15,400 37,000 51,000 123,800 $ (21,800) 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 Total $ 930,000 472,000 458,000 Dirt Bikes $ 265,000 115,000 150,000 69,000 43,300 116,000 186,000 414,300 $ 43,700 Mountain Bikes $ 410,000 204,000 206,000 Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* Total fixed expenses 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. 8,200 20,300 40,700 53,000 122,200 $ 27,800 40,400 7,600 38,300 82,000 168,300 $ 37,700 Racing Bikes $ 255,000 153,000 102,000 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? 20,400 15,400 37,000 51,000 123,800 $ (21,800) 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.

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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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 $ 930,000 472,000 458,000 69,000 43,300 116,000 186,000 414,300 $ 43,700 Dirt Bikes $ 265,000 115,000 150,000 8,200 20,300 40,700 53,000 122, 200 $ 27,800 Mountain Bikes $ 410,000 204,000 206,000 40,400 7,600 38,300 82,000 168,300 $ 37,700 Answer is not complete. 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? Racing Bikes $ 255,000 153,000 102,000 20,400 15,400 *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. 37,000 51,000 123,800 $ (21,800) 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.
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 Net operating income (loss) Total $ 930,000 472,000 458,000 69,000 43,300 116,000 186,000 414,300 $ 43,700 Dirt Bikes $ 265,000 115,000 150,000 8,200 20,300 40,700 53,000 122, 200 $ 27,800 Mountain Bikes $ 410,000 204,000 206,000 40,400 7,600 38,300 82,000 168,300 $ 37,700 Answer is not complete. 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? Racing Bikes $ 255,000 153,000 102,000 20,400 15,400 *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. 37,000 51,000 123,800 $ (21,800) 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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