Question 5 Ball Sport Equipment manufactures round, rectangular and octagonal trampolines. Data on sales and expenses for the past month follow: Product line Total Round Rectangular Octagonal Sales 1,000,000 140,000 500,000 360,000 Less Variable Expenses 410,000 60,000 200,000 150,000 Contribution Margin Less: fixed expenses 590,000 80,000 300,000 210,000 Advertsing - 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" Total Fixed Expenses 200,000 28,000 100,000 72,000 530,000 95,000 257,000 178,000 Net Operating income (loss) "A common fixed cost that is allocated on the basis of sales pesos 60,000 (15,000) 43,000 32,000 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 trampoline be discontinued? You may assume that 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 usable to management in assessing the long-run profitability of the various product lines.
Question 5 Ball Sport Equipment manufactures round, rectangular and octagonal trampolines. Data on sales and expenses for the past month follow: Product line Total Round Rectangular Octagonal Sales 1,000,000 140,000 500,000 360,000 Less Variable Expenses 410,000 60,000 200,000 150,000 Contribution Margin Less: fixed expenses 590,000 80,000 300,000 210,000 Advertsing - 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" Total Fixed Expenses 200,000 28,000 100,000 72,000 530,000 95,000 257,000 178,000 Net Operating income (loss) "A common fixed cost that is allocated on the basis of sales pesos 60,000 (15,000) 43,000 32,000 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 trampoline be discontinued? You may assume that 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 usable to management in assessing the long-run profitability of the various product lines.
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:Question 5
Ball Sport Equipment manufactures round, rectangular and octagonal trampolines. Data on sales and
expenses for the past month follow:
Product line
Total
Round
Rectanguler Octagonal
Sales
1,000,000
140,000
500,000
360,000
Less Variable Expenses
410,000
60,000
200,000
150,000
Contribution Margin
590,000
80,000
300,000
210,000
Less: fixed expenses:
Advertsing - 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"
Total Fixed Expenses
200,000
530,000
28,000
100,000
72,000
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 pesos
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 trampoline be discontinued? You may assume that 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 usable to management in assessing the
long-run profitability of the various product lines.
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