Sales $ 920,000 $ 261,000 $ 407,000 $ 252,000 Variable manufacturing and selling

Question

Sales $ 920,000 $ 261,000 $ 407,000 $ 252,000 Variable manufacturing and selling expenses 472,000 119,000 194,000 159,000 Contribution margin 448,000 142,000 213,000 93,000 Fixed expenses: Advertising, traceable 69,800 8,900 40,400 20,500 Depreciation of special equipment 42,900 20,200 7,300 15,400 Salaries of product-line managers 114,300 40,500 38,700 35,100 Allocated common fixed expenses* 184,000 52,200 81,400 50,400 Total fixed expenses 411,000 121,800 167,800 121,400 Net operating income (loss) $ 37,000 $ 20,200 $ 45,200 $ (28,400) *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?

Explanation / Answer

Req 1: DIFFERENTIAL ANALYSIS Expected Decrease in Revenue(Racing Bikes) -$252,000.00 Less: Expected Decrease in Total cost Decrease in Total Variable cost of Racing Bikes $159,000.00 Decrease in Total Fixed cost $55,600.00 Traceable Advertisement Expense 20,500 Salaries of Product Line manageers 35,100 Expected Decrease in Operating income -$37,400.00 Hence, Product Racing Bikes should not be discontinued as it will reduce the profits by $ 37,400 Note: Allocated Common Fixed expense and depreciation on Special Equipment has to be incurred even on discontinuance.Hence Irrelevant for decision making

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.