omowork-Chapter 12 C D eto.mheducation.com/hm.t 5.00 points AB, a Swedish manufa
ID: 2482779 • Letter: O
Question
omowork-Chapter 12 C D eto.mheducation.com/hm.t 5.00 points AB, a Swedish manufacturer of sailing yachts: Requirement 1 relates to Case 1, and requirement 2 relates t A number of costs are listed below that may be relevant in decisions faced by the management of Svahn 1 relates to Case 1, and requirement 2 relates to Case 2 Consider the two cases 1. The company chronically, has no idle capacity and the old Model B100 machine is the company's constraint. Management is considering purchasing a Model B300 machine to use in addition to the company's present Model B100 machine. The old Model B100 machine will continue to be used to capacity as before, with the new Model 8300 machine being used to expand production. This will increase the company's production and sales. The increase in volume will be large enough to require ncreases in fixed seling expenses and in general administrative overhead, but not in the fixed manufacturing overhead 2 The old Model B100 machine is not the company's constraint, but management is considering replacing it with a new Model B300 machine bec ause of the potential savings in direct materials with the new machine. The Model B100 machine would be sold. This change will have no effect on production or sales, other than some savings in direct materials costs due to less waste Required: Indicate whether each item is relevant or not relevant in the following situations Case 2 a. Sales revenue b. Direct matenals c. Direct labor d Variable manufacturing overhead e. Depreciation-Model 6100 mac hine f Book value-Model B100 machine g. Disposal value-Model B100 machine h. Market value-Model B300 machine (cost) i Fixed manufactuning overhead (general) j Vanable selling experise k Fixed selling expense L. General administrative overhead ReterencesExplanation / Answer
Answer to Question No. 2 Only
1a. The following statement shows the Net Impact on Operating Income by discounting racing bikes.
Particulars
Current total ($)
Total ($) , if Racing bikes dropped
Difference : Net Operating income Increase or (Decrease)
Sales
926,000
670,000
( 256,000)
Variable Manufacturing and Selling Expenses
467,000
309,000
(158,000)
Contribution margin
459,000
361,000
(98,000)
Fixed Expenses :
Advertising Traceable
69,700
49,300
(20,400)
Depreciation
44,200
44,200 *
0
Salaries of Product line Manager
114,700
79,100
( 35,600)
Common Fixed Expenses
185,200
185,200 #
0
Total Fixed expenses
413,800
357,800
( 56,000)
Net Operating Income / (Loss)
45,200
3,200
( 42,000)
* As it is given in the question that Special Equipment used to produce Racing Bikes has no resale value and hence this is to be depreciated only even though Racing Bikes Discontinued. Hence Depreciation amount remains same.
# Common Fixed Expenses will not vary if one line of business discontinued. Hence Common Fixed Expenses Will remain same even Racing Bikes Discontinued.
Conclusion : From the above computation, it can be concluded that discontinuation of Racing Bikes business will decrease the Operating Income by $42,000/- from the present level of income.
1b. Production and sale of Racing Bikes should not be discontinued as it discontinuance of this business will lead to drop in Operating income by $42,000/-. ( Refer above conclusion also).
2a. Following is the Segemnt Income Statement.
Particulars
Total ($)
Dirty bikes
Mountain Bikes
Racing Bikes
Sales
926,000
264,000
406,000
256,000
Variable Manufacturing and Selling Expenses
467,000
113,000
196,000
158,000
Contribution margin
459,000
151,000
210,000
98,000
Fixed Expenses :
Advertising Traceable
69,700
8,500
40,800
20,400
Depreciation
44,200
20,300
7,900
16,000
Salaries of Product line Manager
114,700
40,700
38,400
35,600
Total traceable Fixed expenses
228,800
69,500
87,100
72,000
Segment Profit/ (Loss)
230,400
81,500
122,900
26,000
Common Fixed Expense
185,200
-
-
-
Net Total Operating Income/ (Loss)
45,200
-
-
-
Answer to Question No. 2 Only
1a. The following statement shows the Net Impact on Operating Income by discounting racing bikes.
Particulars
Current total ($)
Total ($) , if Racing bikes dropped
Difference : Net Operating income Increase or (Decrease)
Sales
926,000
670,000
( 256,000)
Variable Manufacturing and Selling Expenses
467,000
309,000
(158,000)
Contribution margin
459,000
361,000
(98,000)
Fixed Expenses :
Advertising Traceable
69,700
49,300
(20,400)
Depreciation
44,200
44,200 *
0
Salaries of Product line Manager
114,700
79,100
( 35,600)
Common Fixed Expenses
185,200
185,200 #
0
Total Fixed expenses
413,800
357,800
( 56,000)
Net Operating Income / (Loss)
45,200
3,200
( 42,000)
* As it is given in the question that Special Equipment used to produce Racing Bikes has no resale value and hence this is to be depreciated only even though Racing Bikes Discontinued. Hence Depreciation amount remains same.
# Common Fixed Expenses will not vary if one line of business discontinued. Hence Common Fixed Expenses Will remain same even Racing Bikes Discontinued.
Conclusion : From the above computation, it can be concluded that discontinuation of Racing Bikes business will decrease the Operating Income by $42,000/- from the present level of income.
1b. Production and sale of Racing Bikes should not be discontinued as it discontinuance of this business will lead to drop in Operating income by $42,000/-. ( Refer above conclusion also).
2a. Following is the Segemnt Income Statement.
Particulars
Total ($)
Dirty bikes
Mountain Bikes
Racing Bikes
Sales
926,000
264,000
406,000
256,000
Variable Manufacturing and Selling Expenses
467,000
113,000
196,000
158,000
Contribution margin
459,000
151,000
210,000
98,000
Fixed Expenses :
Advertising Traceable
69,700
8,500
40,800
20,400
Depreciation
44,200
20,300
7,900
16,000
Salaries of Product line Manager
114,700
40,700
38,400
35,600
Total traceable Fixed expenses
228,800
69,500
87,100
72,000
Segment Profit/ (Loss)
230,400
81,500
122,900
26,000
Common Fixed Expense
185,200
-
-
-
Net Total Operating Income/ (Loss)
45,200
-
-
-
Answer to Question No. 2 Only
1a. The following statement shows the Net Impact on Operating Income by discounting racing bikes.
Particulars
Current total ($)
Total ($) , if Racing bikes dropped
Difference : Net Operating income Increase or (Decrease)
Sales
926,000
670,000
( 256,000)
Variable Manufacturing and Selling Expenses
467,000
309,000
(158,000)
Contribution margin
459,000
361,000
(98,000)
Fixed Expenses :
Advertising Traceable
69,700
49,300
(20,400)
Depreciation
44,200
44,200 *
0
Salaries of Product line Manager
114,700
79,100
( 35,600)
Common Fixed Expenses
185,200
185,200 #
0
Total Fixed expenses
413,800
357,800
( 56,000)
Net Operating Income / (Loss)
45,200
3,200
( 42,000)
* As it is given in the question that Special Equipment used to produce Racing Bikes has no resale value and hence this is to be depreciated only even though Racing Bikes Discontinued. Hence Depreciation amount remains same.
# Common Fixed Expenses will not vary if one line of business discontinued. Hence Common Fixed Expenses Will remain same even Racing Bikes Discontinued.
Conclusion : From the above computation, it can be concluded that discontinuation of Racing Bikes business will decrease the Operating Income by $42,000/- from the present level of income.
1b. Production and sale of Racing Bikes should not be discontinued as it discontinuance of this business will lead to drop in Operating income by $42,000/-. ( Refer above conclusion also).
2a. Following is the Segemnt Income Statement.
Particulars
Total ($)
Dirty bikes
Mountain Bikes
Racing Bikes
Sales
926,000
264,000
406,000
256,000
Variable Manufacturing and Selling Expenses
467,000
113,000
196,000
158,000
Contribution margin
459,000
151,000
210,000
98,000
Fixed Expenses :
Advertising Traceable
69,700
8,500
40,800
20,400
Depreciation
44,200
20,300
7,900
16,000
Salaries of Product line Manager
114,700
40,700
38,400
35,600
Total traceable Fixed expenses
228,800
69,500
87,100
72,000
Segment Profit/ (Loss)
230,400
81,500
122,900
26,000
Common Fixed Expense
185,200
-
-
-
Net Total Operating Income/ (Loss)
45,200
-
-
-
Answer to Question No. 2 Only
1a. The following statement shows the Net Impact on Operating Income by discounting racing bikes.
Particulars
Current total ($)
Total ($) , if Racing bikes dropped
Difference : Net Operating income Increase or (Decrease)
Sales
926,000
670,000
( 256,000)
Variable Manufacturing and Selling Expenses
467,000
309,000
(158,000)
Contribution margin
459,000
361,000
(98,000)
Fixed Expenses :
Advertising Traceable
69,700
49,300
(20,400)
Depreciation
44,200
44,200 *
0
Salaries of Product line Manager
114,700
79,100
( 35,600)
Common Fixed Expenses
185,200
185,200 #
0
Total Fixed expenses
413,800
357,800
( 56,000)
Net Operating Income / (Loss)
45,200
3,200
( 42,000)
* As it is given in the question that Special Equipment used to produce Racing Bikes has no resale value and hence this is to be depreciated only even though Racing Bikes Discontinued. Hence Depreciation amount remains same.
# Common Fixed Expenses will not vary if one line of business discontinued. Hence Common Fixed Expenses Will remain same even Racing Bikes Discontinued.
Conclusion : From the above computation, it can be concluded that discontinuation of Racing Bikes business will decrease the Operating Income by $42,000/- from the present level of income.
1b. Production and sale of Racing Bikes should not be discontinued as it discontinuance of this business will lead to drop in Operating income by $42,000/-. ( Refer above conclusion also).
2a. Following is the Segemnt Income Statement.
Particulars
Total ($)
Dirty bikes
Mountain Bikes
Racing Bikes
Sales
926,000
264,000
406,000
256,000
Variable Manufacturing and Selling Expenses
467,000
113,000
196,000
158,000
Contribution margin
459,000
151,000
210,000
98,000
Fixed Expenses :
Advertising Traceable
69,700
8,500
40,800
20,400
Depreciation
44,200
20,300
7,900
16,000
Salaries of Product line Manager
114,700
40,700
38,400
35,600
Total traceable Fixed expenses
228,800
69,500
87,100
72,000
Segment Profit/ (Loss)
230,400
81,500
122,900
26,000
Common Fixed Expense
185,200
-
-
-
Net Total Operating Income/ (Loss)
45,200
-
-
-
Particulars
Current total ($)
Total ($) , if Racing bikes dropped
Difference : Net Operating income Increase or (Decrease)
Sales
926,000
670,000
( 256,000)
Variable Manufacturing and Selling Expenses
467,000
309,000
(158,000)
Contribution margin
459,000
361,000
(98,000)
Fixed Expenses :
Advertising Traceable
69,700
49,300
(20,400)
Depreciation
44,200
44,200 *
0
Salaries of Product line Manager
114,700
79,100
( 35,600)
Common Fixed Expenses
185,200
185,200 #
0
Total Fixed expenses
413,800
357,800
( 56,000)
Net Operating Income / (Loss)
45,200
3,200
( 42,000)
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