00 153,000 213,000
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:
| Total | Dirt Bikes | Mountain Bikes | Racing Bikes | |
|---|---|---|---|---|
| Sales | $ 924,000 | $ 265,000 | $ 409,000 | $ 250,000 |
| Variable manufacturing and selling expenses | 459,000 | 112,000 | 196,000 | 151,000 |
| Contribution margin | 465,000 | 153,000 | 213,000 | 99,000 |
| Fixed expenses: | ||||
| Advertising, traceable | 68,900 | 8,200 | 40,600 | 20,100 |
| 44,200 | 20,800 | 7,400 | 16,000 | |
| Salaries of product-line managers | 116,100 | 40,600 | 38,900 | 36,600 |
| Allocated common fixed expenses* | 184,800 | 53,000 | 81,800 | 50,000 |
| Total fixed expenses | 414,000 | 122,600 | 168,700 | 122,700 |
| Net operating income (loss) | $ 51,000 | $ 30,400 | $ 44,300 | $ (23,700) |
*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.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
