The Regal Cycle Company manufactures three types of bicyclesa dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow:

		Total		Dirt Bikes		Mountain Bikes		Racing Bikes
Sales	$	924,000	$	263,000	$	405,000	$	256,000
Variable manufacturing and selling expenses		474,000		113,000		204,000		157,000
Contribution margin		450,000		150,000		201,000		99,000
Fixed expenses:
Advertising, traceable		69,800		8,700		40,700		20,400
Depreciation of special equipment		43,600		20,600		7,100		15,900
Salaries of product-line managers		114,400		40,500		38,100		35,800
Allocated common fixed expenses*		184,800		52,600		81,000		51,200
Total fixed expenses		412,600		122,400		166,900		123,300
Net operating income (loss)	$	37,400	$	27,600	$	34,100	$	(24,300)

*Allocated on the basis of sales dollars.

Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear out.

Required:

1a.	What is the impact on net operating income by discontinuing racing bikes? (Decreases should be indicated by a minus sign.)

1b.	Should production and sale of the racing bikes be discontinued?
	Yes No

2a.	Prepare a segmented income statement.

2b.	Would a segmented income statement format be more usable to management in assessing the long-run profitability of the various product lines.
	Yes No

Troy Engines, Ltd., manufactures a variety of engines for use in heavy equipment. The company has always produced all of the necessary parts for its engines, including all of the carburetors. An outside supplier has offered to sell one type of carburetor to Troy Engines, Ltd., for a cost of $34 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally:

		Per Unit		15,900 Units Per Year
Direct materials	$	9	$	143,100
Direct labor		11		174,900
Variable manufacturing overhead		2		31,800
Fixed manufacturing overhead, traceable		9*		143,100
Fixed manufacturing overhead, allocated		13		206,700
Total cost	$	44	$	699,600

*40% supervisory salaries; 60% depreciation of special equipment (no resale value).

Required:

1a.	Assuming that the company has no alternative use for the facilities that are now being used to produce the carburetors, compute the total cost of making and buying the parts. (Round your Fixed manufacturing overhead per unit rate to 2 decimals.)

1b.	Should the outside suppliers offer be accepted?
	Accept Reject

2a.

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 $141,560 per year. Compute the total cost of making and buying the parts. (Round your Fixed manufacturing overhead per unit rate to 2 decimals.)

2b.	Should Troy Engines, Ltd., accept the offer to buy the carburetors for $34 per unit?
	Accept Reject

Imperial Jewelers is considering a special order for 25 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is $403.00 and its unit product cost is $258.00 as shown below:

Direct materials	$	144
Direct labor		82
Manufacturing overhead		32
Unit product cost	$	258

Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $12 of the overhead is variable with respect to the number of bracelets produced. The customer who is interested in the special bracelet order would like special filigree applied to the bracelets. This filigree would require additional materials costing $11 per bracelet and would also require acquisition of a special tool costing $453 that would have no other use once the special order is completed. This order would have no effect on the companys regular sales and the order could be fulfilled using the companys existing capacity without affecting any other order.

Required:

1.	What effect would accepting this order have on the companys net operating income if a special price of $363.00 per bracelet is offered for this order? (Enter all amounts as positive values.)

2.	Should the special order be accepted at this price?
	Yes No
Outdoor Luggage Inc. makes high-end hard-sided luggage for sports equipment. Data concerning three of the companys most popular models appear below.

	Ski Guard			Golf Guard			Fishing Guard
Selling price per unit		$310			$320			$265
Variable cost per unit		$110			$150			$145
Plastic injection molding machine processing time required to produce one unit		8 minutes			10 minutes			10 minutes
Pounds of plastic pellets per unit		7 pounds			16 pounds			6 pounds

Required:
1a.	The total time available on the plastic injection molding machine is the constraint in the production process. What is the contribution margin per unit of the constrained resources for Ski Guard, Golf Guard and Fishing Guard? (Round your answers to 2 decimal places.)

1b.	Which product would be the most profitable use of this constraint?
	Ski Guard Fishing Guard Golf Guard

1c.	Which product would be the least profitable use of this constraint?
	Ski Guard Fishing Guard Golf Guard

2a.	A severe shortage of plastic pellets has required the company to cut back its production so much that the plastic injection molding machine is no longer the bottleneck. Instead, the constraint is the total available pounds of plastic pellets. What is contribution margin per unit of the constrained resources for Ski Guard, Golf Guard and Fishing Guard? (Round your answers to 2 decimal places.)

2b.	Which product would be the most profitable use of this constraint?
	Ski Guard Golf Guard Fishing Guard

2c.	Which product would be the least profitable use of this constraint?
	Ski Guard Golf Guard Fishing Guard

3.	Which product has the largest unit contribution margin?
	Ski Guard Fishing Guard Golf Guard
Portsmouth Company makes fine colonial reproduction furniture. Upholstered furniture is one of its major product lines and the bottleneck on this production line is time in the upholstery shop. Upholstering is a craft that takes years of experience to master and the demand for upholstered furniture far exceeds the companys capacity in the upholstering shop. Information concerning three of the companys upholstered chairs appears below:

	Recliner	Sofa	Love Seat
Selling price per unit	$ 1,136	$ 2,015	$ 1,575
Variable cost per unit	$ 800	$ 1,300	$ 1,150
Upholstery shop time required to produce one unit	6 hours	13 hours	5 hours

Required:
1.	More time could be made available in the upholstery shop by asking the employees who work in this shop to work overtime. Assuming that this extra time would be used to produce sofas, up to how much of a premium should the company be willing to pay per hour to keep the upholstery shop open after normal working hours?

2.

A small nearby upholstering company has offered to upholster furniture for Portsmouth at a fixed charge of $52 per hour. The management of Portsmouth is confident that this upholstering companys work is high quality and their craftsmen should be able to work about as quickly as Portsmouth's own craftsmen on the simpler upholstering jobs such as the love seat. Should management accept this offer?

	Yes No
Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $96,000 per quarter. The company allocates these costs to the joint products on the basis of their relative sales value at the split-off point. Unit selling prices and total output at the split-off point are as follows:

Product	Selling Price			Quarterly Output
A	$	4	per pound		14,000	pounds
B	$	5	per pound		19,000	pounds
C	$	12	per gallon		5,000	gallons

Each product can be processed further after the split-off point. Additional processing requires no special facilities. The additional processing costs (per quarter) and unit selling prices after further processing are given below:

Product	Additional Processing Costs			Selling Price
A	$	39,000		$	6	per pound
B	$	37,000		$	8	per pound
C	$	12,000		$	15	per gallon

Required:
a.	Compute the incremental profit (loss) for each product.

b.		Which product or products should be sold at the split-off point? (You may select more than one answer. Single click the box with a check mark for correct answers and double click to empty the box for the wrong answers.)
	Product A

	Product B

Product C

c.	Which product or products should be processed further? (You may select more than one answer. Single click the box with a check mark for correct answers and double click to empty the box for the wrong answers.)

	Product A

	Product B

Product C

rev: 11_27_2015_

Kristen Lu purchased a used automobile for $13,600 at the beginning of last year and incurred the following operating costs:

Depreciation ($13,600 5 years)	$2,720
Insurance	$1,500
Garage rent	$800
Automobile tax and license	$380
Variable operating cost	$0.06 per mile

The variable operating cost consists of gasoline, oil, tires, maintenance, and repairs. Kristen estimates that, at her current rate of usage, the car will have zero resale value in five years, so the annual straight-line depreciation is $2,720. The car is kept in a garage for a monthly fee.

Required:

1.	Kristen drove the car 18,000 miles last year. Compute the average cost per mile of owning and operating the car. (Round your answers to 2 decimal places.)

2.		Kristen is unsure about whether she should use her own car or rent a car to go on an extended cross-country trip for two weeks during spring break. What costs above are relevant in this decision? (You may select more than one answer. Single click the box with a check mark for correct answers and double click to empty the box for the wrong answers.)
	Variable operating costs

	Depreciation

	Automobile tax

	License costs

Insurance costs

Jackson County Senior Services is a nonprofit organization devoted to providing essential services to seniors who live in their own homes within the Jackson County area. Three services are provided for seniorshome nursing, Meals On Wheels, and housekeeping. Data on revenue and expenses for the past year follow:

		Total		Home Nursing		Meals On Wheels		House- keeping
Revenues	$	920,000	$	264,000	$	403,000	$	253,000
Variable expenses		467,000		113,000		197,000		157,000
Contribution margin		453,000		151,000		206,000		96,000
Fixed expenses:
Depreciation		70,000		8,900		40,900		20,200
Liability insurance		42,800		20,200		7,400		15,200
Program administrators salaries		115,100		40,500		38,700		35,900
General administrative overhead*		184,000		52,800		80,600		50,600
Total fixed expenses		411,900		122,400		167,600		121,900
Net operating income (loss)	$	41,100	$	28,600	$	38,400	$	(25,900)

*Allocated on the basis of program revenues.

The head administrator of Jackson County Senior Services, Judith Miyama, is concerned about the organizations finances and considers the net operating income of $41,100 last year to be razor-thin. (Last year's results were very similar to the results for previous years and are representative of what would be expected in the future.) She feels that the organization should be building its financial reserves at a more rapid rate in order to prepare for the next inevitable recession. After seeing the above report, Ms. Miyama asked for more information about the financial advisability of perhaps discontinuing the housekeeping program.

The depreciation in housekeeping is for a small van that is used to carry the housekeepers and their equipment from job to job. If the program were discontinued, the van would be donated to a charitable organization. None of the general administrative overhead would be avoided if the housekeeping program were dropped, but the liability insurance and the salary of the program administrator would be avoided.

Required:

1-a.	What is the impact on net operating income by discontinuing housekeeping program? (Decreases should be indicated by a minus sign.)

1-b.	Should the housekeeping program be discontinued?
	Yes No

2-a.	Prepare a segmented income statement.

2-b.	Would a segmented income statement format be more useful to management in assessing the long-run financial viability of the various services.
	Yes No