Charter Sports Equipment manufactures round, rectangular, and octagonal trampolines. Sales and expensedata for the past month follow:TrampolineTotal Round Rectangular OctagonalSales ..................................................... $1,000,000 $140,000 $500,000 $360,000Variable expenses ................................. 410,000 60,000 200,000 150,000Contribution margin ............................... 590,000 80,000 300,000 210,000Fixed expenses:Advertising—traceable ...................... 216,000 41,000 110,000 65,000Depreciation of special equipment .... 95,000 20,000 40,000 35,000Line supervisors’ salaries .................. 19,000 6,000 7,000 6,000General factory overhead* ................. 200,000 28,000 100,000 72,000Total fixed expenses ............................. 530,000 95,000 257,000 178,000Net operating income (loss) ................... $ 60,000 $ (15,000) $ 43,000 $ 32,000*A common fixed cost that is allocated on the basis of sales dollars.Management is concerned about the continued losses shown by the round trampolines and wantsa recommendation as to whether or not the line should be discontinued. The special equipment used toproduce the trampolines has no resale value. If the round trampoline model is dropped, the two line supervisors assigned to the model would be discharged.Required:1. Should production and sale of the round trampolines be discontinued? The company has no other usefor the capacity now being used to produce the round trampolines. Show computations to supportyour answer.2. Recast the above data in a format that would be more useful to management in assessing theprofitability of the various product lines.
Charter Sports Equipment manufactures round, rectangular, and octagonal trampolines. Sales and expense
data for the past month follow:
Trampoline
Total Round Rectangular Octagonal
Sales ..................................................... $1,000,000 $140,000 $500,000 $360,000
Variable expenses ................................. 410,000 60,000 200,000 150,000
Contribution margin ............................... 590,000 80,000 300,000 210,000
Fixed expenses:
Advertising—traceable ...................... 216,000 41,000 110,000 65,000
Depreciation of special equipment .... 95,000 20,000 40,000 35,000
Line supervisors’ salaries .................. 19,000 6,000 7,000 6,000
General factory overhead* ................. 200,000 28,000 100,000 72,000
Total fixed expenses ............................. 530,000 95,000 257,000 178,000
Net operating income (loss) ................... $ 60,000 $ (15,000) $ 43,000 $ 32,000
*A common fixed cost that is allocated on the basis of sales dollars.
Management is concerned about the continued losses shown by the round trampolines and wants
a recommendation as to whether or not the line should be discontinued. The special equipment used to
produce the trampolines has no resale value. If the round trampoline model is dropped, the two line supervisors assigned to the model would be discharged.
Required:
1. Should production and sale of the round trampolines be discontinued? The company has no other use
for the capacity now being used to produce the round trampolines. Show computations to support
your answer.
2. Recast the above data in a format that would be more useful to management in assessing the
profitability of the various product lines.
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