QUESTION 2 TAKORADIAN BROTHERS Sports Equipments manufactures and sells Round, Rectangular and Octagonal Trampolines. Data on the sales and expenses for the past month are as follows: Trampoline Total Round Rectangular Octagonal GHC GH GH GH Sales 10,000 1,400 5,000 3,600 Less: Variable Expenses 4,100 600 2,000 1,500 Contribution Margin (A) 5,900 800 3,000 2,100 1,100 400 Less: Fixed Expenses: Advertising - traceable Depreciation of special equipment Line supervisor's salary General factory overhead General admin expenses Total fixed expenses (B) 70 2,160 950 190 1.200 800 5,300 410 200 60 168 112 950 650 350 60 432 288 1,780 600 400 2,570 Net operating profit/(loss) [A-B] 600 (150) 430 320 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 following additional information is available: 1. General factory overheads as well as general administrative expenses are common fixed costs that are allocated on the basis of sales value. 2. The special equipment used to produce the trampolines has no resale value. 1