ll Exercise 43-2 (30 minutes) ) of discontinuing the racing bikes jg e financial (asacvartede / computed as follows’ | Lost contribution margin. $7 J/\ Fined costs that can in be avoid ded: 000) Advertising, roma an ‘cond J Salary of the produ ict-line mal . 10,000 Financial ee) of discontinuing the 16,009 Racing BIKES ++++»-+++-++* The depreciation of the special equipment is a sunk cost an relevant to the decision. The co common costs are allocated and a Continue regardless of whether or not the racing bikes are dj a thus, they are not relevant to the decision. Med, Alternative Solution: Difference: Net Total If — Operating Racing —_Income Current Bikes Are Increase or Total Dropped (D / . $300,000 $240,000 $(60,000) 87,000 _33,000 153,000 (27,000) 30,000 24,000 6,00 23,000 23,000 0 $32,000 $21,000 special equipment if it is disposed of.J te 2 ze 13-2 (continued) 2, no, production and sale ofthe racing bikes should nat be discontinued segmented report can be Improved by eliminating the allocation of Jf s ‘common fixed expenses. Following the format introduced in Choyter 6 fora segmented income statement, a better report would be: Dit Mountain Racing Total Bikes Bikes Bikes sales $300,000 $90,000 $150,000 $60,000 Variable manufacturing and Sling expenses. 420,000 27,000 _60,000 33,900 contribution margin 180,000 63,000 _90,000 27,000 30,000 10,000 14,000 6,000 23,000 6,000 9,000 8,000 35,000 12.000 _13,000 10.000 Product ine segment margin 92,000 $35,000 $.54.000 £2000 Common fixed expenses.. Net operating income. $32.00pxorcise 13-3 (90 inte) F A ? ee 43-4 (15 minut t Differential Costs cn the nererental Fe th FO varie manufan $3! reread costs are costs: qreremental Coss: Variable costs: a Total costs. a i od ir manui Finandal (disadvantage) of Duving vere tre the carburetors - (6) $(90,000) ‘Total variable © + ony the suervisayslres of $2 per unit (= 86 pat) Foxed costs: canbe avoided ifthe carburetors are Plt . The remaining Purchase of s este ofthe special equipment a sunk cost, hece, et Total increment ber ceprecaton expense (~ 96 x 2/3) pet UMTS rt et jal advant to this decision. special order A raced edt, re company soul ff te oer nd ‘ontinye to produce the carburefors internally. en ht aceepting the aot pcs se eauiremest 1) oe Cost of making (see requirement 1) scares te Opportunity cost—segment margin on a potential new product line OTe mes Simei p 13-10 (15 minutes) | advantage of making the 40,000 starters is Computed as 00° re s toons: = costof purchasing (40,000 units x $8.40 per unit) fe a 500° oe materi materials (40,000 units x $3.10 per ui $124,000 gen 000 pirect labor (40,000 units x $2.70 per unit)......... 108,000 000 \arble manufacturing overhead : 500 (40,000 units x $0. 60 per unit) .. 24,000 000 supervision... Total costs. 000 Fnandal advantage of making the starters... $20,000 2y will be | or rejected. a3Te. 43-11 (20 minutes) Po advantage of accepting the supplier's offer is computed ag follows: ; ; Make ce $630,009 oreo net cane: units x wet 00 per Unit) ......+ 300,000 Variable me! ing ove! 30,000 uns §2.40 per unit). Bs peat overhead (30, $3.00 per unit*) i egun! ane icici mist 20- $6 per unt) would not be relevant, because it wil continue of whether the company makes or buys the parts.problem 13-19 (60 minutes) -rpe financial (disadvantage) of dl calculated as follows: Sind te Hote Sar, Contribution margin lost if the Housek AM 1S AOPPEd cesses a fe Fixed costs that can be avoided: """""" Liability insurance... Program administrator's salary Financial (disadvantage) of discontinuing the Housekeeping program.. on 328.000) jation on the van is a sunk cost and the van has since it would be donated to another organization. The ao ~ administrative overhead is allocated and none of it would be avoided if the program were dropped; thus, it is not relevant to the decision, ‘The same result can be obtained with the altemative analysis below: Difference: . 118,000 78,000 37,000 General administrative overhead. 180,000 19.000 _——_ a “495,000 353,000 _52,000bool » * problem 13-19 (continued) It “o give the administrator of the entire organization a clea, a sf the financial viability of each of the organization's progra Fe ich rmyud not be allocated. Ibis a corm administrative overt the total that should be omni tom Program potter income statement would be: Segment margin, | Home Me Total Nursing hee _.. $900,000 $260,000 $400,000 eat, 000 $240 oq) | ” “440.000 740,000 “ison “a .. 68,000 8,000 - 40,000 “2000 20000 7000 sm .« 225,000. 68,000 85,000 _Tull aay 185,000 § 72,000 $105,000 ¢l