Question

	Total			Dirt Bikes			Mountain Bikes			Racing Bikes
Sales	$	914,000		$	261,000		$	403,000		$	250,000
Variable manufacturing and selling expenses		468,000			110,000			205,000			153,000
Contribution margin		446,000			151,000			198,000			97,000
Fixed expenses:
Advertising, traceable		69,300			8,900			40,300			20,100
Depreciation of special equipment		43,200			20,500			7,400			15,300
Salaries of product-line managers		114,000			40,500			38,300			35,200
Allocated common fixed expenses*		182,800			52,200			80,600			50,000
Total fixed expenses		409,300			122,100			166,600			120,600
Net operating income (loss)	$	36,700		$	28,900		$	31,400		$	(23,600)

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?

Answer 1

1
	Current Total	Total If Racing Bikes Are Dropped	Difference: Net Operating Income
Sales	914000	664000	-250000
Variable manufacturing and selling expenses	468000	315000	153000
Contribution margin (loss)	446000	349000	-97000
Fixed expenses:
Advertising, traceable	69300	49200	20100
Depreciation on special equipment	43200	43200	0
Salaries of product manager	114000	78800	35200
Common allocated costs	182800	182800	0
Total fixed expenses	409300	354000	55300
Net operating income (loss)	36700	-5000	-41700
Financial (disadvantage) (41700)
2
No, the production and sale of racing bikes should not be discontinued as income decreases by $41700