Total Bikes Bikes Bikes Sales $935,000 $270,000 407,000 258,000 Variable manufac
ID: 2523241 • Letter: T
Question
Total Bikes Bikes Bikes Sales $935,000 $270,000 407,000 258,000 Variable manufacturing and selling 479,000 119,000 204,000 156,000 Contribution margin Fixed expenses: 456,000 151,000 203,000 102,000 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* 69,800 8,300 43,600 20,600 114,700 40,800 54,000 40,700 20,800 15,800 35,400 51,600 -5 800123,600 $ 40,900 27,300 35,200 $(21,600) 38,500 81,400 415,100 123,700 167,800 187,000 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. 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-run profitability of the various product lines. Complete this question by entering your answers in the tabs below Required 1Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?Explanation / Answer
Current Total Total If Racing Bikes Are Dropped Difference: NetOperatingIncome Sales 935000 677000 -258000 Variable manufacturing and selling expenses 479000 323000 156000 Contribution margin (loss) 456000 354000 -102000 Fixed expenses: Advertising, traceable 69800 49000 20800 Depreciation on special equipment 43600 43600 0 Salaries of product manager 114700 79300 35400 Common allocated costs 187000 187000 0 Total fixed expenses 415100 358900 56200 Net operating income (loss) 40900 -4900 -45800 Financial(disadvantage) (-45800) 2 No 3 Total Dirt Bikes Mountain Bikes Racing Bikes Sales 935000 270000 407000 258000 Variable manufacturing and selling expenses 479000 119000 204000 156000 Contribution margin (loss) 456000 151000 203000 102000 Traceable fixed expenses: Advertising, traceable 69800 8300 40700 20800 Depreciation on special equipment 43600 20600 7200 15800 Salaries of product manager 114700 40800 38500 35400 Total traceable fixed expenses 228100 69700 86400 72000 Product line segment margin 227900 81300 116600 30000 Common fixed expenses 187000 Net operating income (loss) 40900