Answer: (1) From the income statement it is clear that the racing bike cannot meet its fixed cost because it cannot provide a contribution towards meeting the fixed cost (2) it should be discontinued since it cannot provide a contribution towards meeting its fixed cost (3)A Dirk bike has a profit of $26,700, A mountain bike has a profit of $39,600, A racing bike has a loss of ($25,000) Total profit for the product line is $41,300
Explanation:
Income statement
Dirk bike mountain bike. Racing bike. Total
$ $ $ $
Sales. 264,000. 407,000 256,000 927,000
Less :Variablecost 114,000. 200,000 157,000. 471,000
----------- -------------- ------------- ------------
Contribution margin 150,000 207,000 99,000 456,000
Less: Fixed cost
Fixed Advertising. 8,900. 40,300. 20,400 69,600
Depreciation of equipment 20,700 7,300 15,900 43,900
Salary of product line manager 40,900. 38,400 36,500 115,800
Allocated common fixed expenses 52,800 81,400 51,200. 185,400
----------- ------------- ---------- -------------
Total Fixed Expenses 123,300 167,400. 124,000 414,700
Net operating income(loss) 26,700 39,600 (25,000) 41,300
(1) From the income statement it is clear that racing bike cannot meet its fixed cost because it cannot provide contribution towards meeting its fixed cost
(2) it should be discontinued since it cannot provide a contribution towards meeting its fixed cost
(3) A Dirk bike has a profit of $26,700, A mountain bike has a profit of $39,600, A racing bike has a loss of ($25,000) Total profit for the product line is $41,300
.Therefore,initially Bill diner's opportunity cost of an additional hot dog is 1.4 units of burger.
approximately.Hence,Bill's diner is willing to sacrifice approximately 0.385 units of burger to consume an additional unit of hot dog.
units of burger.Notice,that here the opportunity cost of additional hot dog decreased from 1.4 units of burger to 0.385 units of burger as Bill's diner changed the consumption combination of both burgers and hot dogs.