2 Sales Variable manufacturing and selling $928,000 $268,000 $401,000 $ 259,000
ID: 2560759 • Letter: 2
Question
2 Sales Variable manufacturing and selling $928,000 $268,000 $401,000 $ 259,000 468,000 119,000 193,000 156,000 Contribution margin Fixed expenses: 460,000 149,000 208,01300 Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses. 70,000 8,600 40,500 20,900 43,800 20,800 7,900 15,100 115,900 40,700 38,700 36,500 51,800 415,300 123,700 167,300 124,300 44,700 25,300 40,700 $(21,300) 185,600 53,600 80,200 Total fixed expenses 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-rum profitability of the various product lines. Complete this question by entering your answers in the tabs below. What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?Explanation / Answer
Answer:
1
financial advantage (disadvantage) per quarter of discontinuing the
financial advantage
It can save Traceable advertising cost
It can save Salary of production manager cost
financial (disadvantage)
If company discontinuing the racing bike then also it has to bare the common fixed cost and it cannot save the fixed cost because it is fixed and not relevant for this decision
Due to discontinuing company has Loss of contribution margin
Loss of contribution margin
-103000
Add:
Saving in
Traceable fixed cost
20900
Salary of production manager
36500
Net loss of the profit
-45600
_______________________________________________-
2
No company should not discontinuing the racing bike becuse it had Net loss of the from over all profit by $ 45,600
Loss of contribution margin
-103000
Add:
Saving in
Traceable fixed cost
20900
Salary of production manager
36500
Net loss of the profit
-45600
__________________________________________________
3
Segmented income statement
Particulars
Total
Dirt bikes
Mountain
bikes
Racing
bikes
Sales
928000
268000
401000
259000
Variable cost
468000
119000
193000
156000
Contribution margin
460000
149000
208000
103000
Traceable Fixed costs:
Advertising
70000
$8,600
$40,500
$20,900
Depreciation on special Equipment
43800
$20,800
$7,900
$15,100
Salaries of product line managers
115900
$40,700
$38,700
$36,500
Total Traceable Fixed costs:
229700
$70,100
$87,100
$72,500
Product line margin
230300
$78,900
$120,900
$30,500
Common fixed costs
185600
Net operating Income/(Loss)
$44,700
Loss of contribution margin
-103000
Add:
Saving in
Traceable fixed cost
20900
Salary of production manager
36500
Net loss of the profit
-45600
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