, 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.
- CORRECT ANSWERS-1. have the contribution margin as negative
a. Add any traceable costs and add salary of the product line manager (any other
salaries too)
b. calculate advantage or disadvantage
2. If it is a financial disadvantage, the production should not be discontinued and vise
versa
3. Fill in the income statement with the traceable fixed expenses (Advertising,
depreciation, salaries)
a. fill in the rest with the information given
1. Assuming the company has no alternative use for the facilities that are now being
used to produce the carburetors, what would be the financial advantage (disadvantage)
of buying 15,000 carburetors from the outside supplier?
2. Should the outside supplier's offer be accepted?
3. Suppose that if the carburetors were purchased, Troy Engines, Ltd., could use the
freed capacity to launch a new product. The segment margin of the new product would
be $150,000 per year. Given this new assumption, what would be the financial
advantage (disadvantage) of buying 15,000 carburetors from the outside supplier?
4. Given the new assumption in requirement 3, should the outside supplier's offer be
accepted? - CORRECT ANSWERS-1. Calculate costs it would take to make the product
1a. Add together Direct Materials, Direct Labor, Variable Manufacturing Overhead,
Fixed Manufacturing Overhead (Traceable)
1b. find the difference between the total cost of make and buy. Disadvantage if the buy
is more
2. offer should not be accepted because there is a financial disadvantage
3. Add the financial disadvantage (-90,000) to the amount of money the new product
line would produce (150,000)
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.
- CORRECT ANSWERS-1. have the contribution margin as negative
a. Add any traceable costs and add salary of the product line manager (any other
salaries too)
b. calculate advantage or disadvantage
2. If it is a financial disadvantage, the production should not be discontinued and vise
versa
3. Fill in the income statement with the traceable fixed expenses (Advertising,
depreciation, salaries)
a. fill in the rest with the information given
1. Assuming the company has no alternative use for the facilities that are now being
used to produce the carburetors, what would be the financial advantage (disadvantage)
of buying 15,000 carburetors from the outside supplier?
2. Should the outside supplier's offer be accepted?
3. Suppose that if the carburetors were purchased, Troy Engines, Ltd., could use the
freed capacity to launch a new product. The segment margin of the new product would
be $150,000 per year. Given this new assumption, what would be the financial
advantage (disadvantage) of buying 15,000 carburetors from the outside supplier?
4. Given the new assumption in requirement 3, should the outside supplier's offer be
accepted? - CORRECT ANSWERS-1. Calculate costs it would take to make the product
1a. Add together Direct Materials, Direct Labor, Variable Manufacturing Overhead,
Fixed Manufacturing Overhead (Traceable)
1b. find the difference between the total cost of make and buy. Disadvantage if the buy
is more
2. offer should not be accepted because there is a financial disadvantage
3. Add the financial disadvantage (-90,000) to the amount of money the new product
line would produce (150,000)
