Problem no.3 Charter Sports Equipment manufactures round, rectangular, and octagonal trampolines. Sales and expense data for the past month follows:
Trampolines Total Round Rectangular Octagonal
Sales $1,000,000.00 $140,000.00 $500,000.00 $360,000.00
Variable expenses $410,000.00 $60,000.00 $200,000.00 $150,000.00
Contribution Margin $590,000.00 $80,000.00 $300,000.00 $210,000.00
Fixed Expenses Advertising Traceable $216,000.00 $41,000.00 $110,000.00 $65,000.00
Depreciation of special equipment $95,000.00 $20,000.00 $40,000.00 $35,000.00
Line supervisor's salary $19,000.00 $6,000.00 $7,000.00 $6,000.00
General Factory overhead $200,000.00 $28,000.00 $100,000.00 $72,000.00
Total fixed expenses $530,000.00 $95,000.00 $257,000.00 $178,000.00
Net operating income (loss) $60,000.00 $15,000.00 $43,000.00 $32,000.00
*A common fixed cost that is allocated on the basis of sales dollars. 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. What is the financial advantage (disadvantage) of discontinuing the round trampolines? 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 data in a format that would be more useful to management in assessing the profitability of the various products.
