Solutions -- Week 14

Solutions -- Week 14 - WEEK CLS DATES [M-W] 14 DATES [T-Th]...

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GNB Problem Solutions – Week-by-Week page 1 of 8 WEEK 14 GNB ASSIGNED PROBLEM SOLUTIONS BUAD 250B – FALL 2009 CLS DATES [M-W] DATES [T-Th] TOPICS READINGS ASSIGNMENTS [TO BE COMPLETED BY DATE ASSIGNED] 26 Nov 23 Nov 24 Relevant Costs for Decision Making Ch. 13 BE: 13-2, 3, 4, 5, 6 PR: 13-8, 10 In-class: 13-9, 12 OUT: Final Exam Review Materials Nov 25 Nov 26 [ No WED or THUR Class ] THANKSGIVING DAY – University Holiday Exercise 13-2 1. No, production and sale of the racing bikes should not be discontinued. If the racing bikes were discontinued, then the net operating income for the company as a whole would decrease by $11,000 each quarter: Lost contribution margin. ................................................................ $(27,000) Fixed costs that can be avoided: Advertising, traceable . ............................................................... $ 6,000 Salary of the product line manager . ........................................... 10,000 16,000 Decrease in net operating income for the company as a whole . ... $(11,000 ) The depreciation of the special equipment is a sunk cost and is not relevant to the decision. The common costs are allocated and will continue regardless of whether or not the racing bikes are discontinued; thus, they are not relevant to the decision. Alternative Solution: Current Total Total If Racing Bikes Are Dropped Difference: Net Operating Income Increase or (Decrease) Sales . ................................................................... $300,000 $240,000 $(60,000) Variable expenses . .............................................. 120,000 87,000 33,000 Contribution margin . ............................................ 180,000 153,000 (27,000 ) Fixed expenses: Advertising, traceable . ..................................... 30,000 24,000 6,000 Depreciation on special equipment* . .................................................. 23,000 23,000 0 Salaries of product managers . ......................... 35,000 25,000 10,000 Common allocated costs . ................................ 60,000 60,000 0 Total fixed expenses . ........................................... 148,000 132,000 16,000 Net operating income . ......................................... $ 32,000 $ 21,000 $ (11,000 ) *Includes pro-rated loss on the special equipment if it is disposed of.
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GNB Problem Solutions – Week-by-Week page 2 of 8 Exercise 13-2 (continued) 2. The segmented report can be improved by eliminating the allocation of the common fixed expenses. Following the format introduced in Chapter 12 for a segmented income statement, a better report would be: Total Dirt Bikes Mountain Bikes Racing Bikes Sales . ....................................................... $300,000 $90,000 $150,000 $60,000 Variable manufacturing and selling expenses . ............................................. 120,000 27,000 60,000 33,000 Contribution margin . ................................. 180,000 63,000 90,000 27,000 Traceable fixed expenses: Advertising . .......................................... 30,000
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Solutions -- Week 14 - WEEK CLS DATES [M-W] 14 DATES [T-Th]...

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