Exercise 11-11 Make or Buy Decision [LO11-3) Han Products manufactures 35,000 units of part 5-6 each year for use on its production line. At this level of activity, the cost per unit for part S-6 is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total cost per part $ 3.90 12.ee 2.10 9.00 $ 27.ee An outside supplier has offered to sell 35,000 units of part 5-6 each year to Han Products for $23 per part. If Han Products accepts this offer, the facilities now being used to manufacture part 5-6 could be rented to another company at an annual rental of $85.000 However. Han Products has determined that two-thirds of the fixed manufacturing overhead being applied to part 5-6 would continue even if part 5-6 were purchased from the outside supplier. Required: What is the financial advantage (disadvantage) of accepting the outside supplier's offer? Exercise 11-2 Dropping or Retaining a Segment [L011-2] The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow: Dirt Mountain Racing Total Bikes Bikes Bikes $ 920,000 $262, eee $ 481,800 $ 257,800 468,000 117, eee 194,000 157,00 452, Bee 145,eee 287, eee 189, 890 Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses Total Fixed expenses Net operating income (loss) 69,600 8,488 40,300 20,900 44,300 20, 500 8,eee 15,800 115,800 40,400 38,500 36,900 184,889 52,400 se, 200 51,400 413,700 121,789 167.000 125,800 $ 38,300 $ 23,300 $ 40,000 $(25,000) "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: 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? 3. Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes? Exercise 11-2 Dropping or Retaining a segment LLO11-2] The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow. Dirt Mountain Racing Total Bikes Bikes Bikes $ 920, eee $262,800 $ 401,00 $ 257,600 468,000 117.000 194,990 157,000 452,eee 145, eee 207,800 1ee.eee Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses Total fixed expenses Net operating income (loss) 69,600 8,400 40,300 20,9ee 44,300 20, 500 8,eee 15,880 115,800 4e, tee 38,500 36,90 184, eee 52, dee 8e 2ee 51,400 413,700 121,789 167, ese 125,Bee $ 38,300 $ 23,300 $ 40,eee (25, eee) *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: 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? 3. Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes? *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: 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? 3. Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long- run profitability of the various product lines. Totals Dirt Bikes Mountain Bikes Racing Bikes Contribution margin (loss) Traceable fored expenses: Total traceable fixed expenses Product line segment margin (los) Net operating income (loss)