Dirt Bikes Mountain Racing Bikes Bikes Sales Variable manufacturing and selling
ID: 2604023 • Letter: D
Question
Dirt Bikes Mountain Racing Bikes Bikes Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: $ 925,000 $262,000 $. 409,000 $ 254,000 460,000 112,000 192,000 156,000 98,000 465,000 150,000 217,0008 0 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses 20,100 15,700 35,500 50,800 168,400120 $ 52,600 $ 28,100 $ 48,600 $(24,100) 40,300 7,400 38,900 81,800 68,900 8,500 43,600 20,500 114,90040,500 185,000 52,400 412,400 121,900 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 the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear 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 lon profitability of the various product lines Complete this question by entering your answers in the tabs below. Required 1 Required 2Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? inancial (disadvantage) per quarterExplanation / Answer
Answer:
1
We can calculate the Financial advantage/(disadvantage) per quarter of discontinuing Racing bikes as under
Current
Total
Total if Racing Bikes are driopped
Diffance in
net operating income
increse/ (decrese)
Sales
$925,000
$671,000
($254,000)
Variable manufacturing & selling expenses
$460,000
304000
$156,000
Contribution margin
$465,000
$367,000
($98,000)
Fixed Expenses
Advertising, traceable
$68,900
48800
$20,100
Depreciation of special equipment
$43,600
43600
$0
Salaries of product line managers
$114,900
79400
$35,500
Allocated common fixed expenses
$185,000
185000
$0
Total Fixed expenses
$412,400
$356,800
$55,600
Net operating income/(loss)
$52,600
$10,200
($42400)
As we can see from the above calculation that, company has Financial disadvantage per quarter of discontinuing Racing bikes by $42,400
_________________________________________________________________
2
No,
Explanation to the answer:
company should not discontinue the production and sell of racing bikes because becuase dropping racing bike reduce the net operating income because of the higher fixed expenses allocation cost
____________________________________________________________________
3
Segmented Income Statement
Total
Dirt Bikes
Mountain Bikes
Racing Bikes
Sales
$925,000
$262,000
$409,000
$254,000
Variable manufacturing & selling expenses
$460,000
112000
192000
156000
Contribution margin (loss)
$465,000
$150,000
$217,000
$98,000
Traceable fixed expenses:
Advertising
$68,900
8500
40300
20100
Depreciation of special equipment
$43,600
20500
7400
15700
Salaries of product line managers
$114,900
40500
38900
35500
Total traceable fixed expenses
227400
69500
86600
71300
Product line segment Margin
$237,600
$80,500
$130,400
$26,700
common fixed expenses
$185,000
Net operating income (loss)
$52,600
Current
Total
Total if Racing Bikes are driopped
Diffance in
net operating income
increse/ (decrese)
Sales
$925,000
$671,000
($254,000)
Variable manufacturing & selling expenses
$460,000
304000
$156,000
Contribution margin
$465,000
$367,000
($98,000)
Fixed Expenses
Advertising, traceable
$68,900
48800
$20,100
Depreciation of special equipment
$43,600
43600
$0
Salaries of product line managers
$114,900
79400
$35,500
Allocated common fixed expenses
$185,000
185000
$0
Total Fixed expenses
$412,400
$356,800
$55,600
Net operating income/(loss)
$52,600
$10,200
($42400)
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