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.
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.
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter2: Basic Cost Management Concepts
Section: Chapter Questions
Problem 22E: Ellerson Company provided the following information for the last calendar year: During the year,...
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![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:
Sales
Variable manufacturing and selling expenses 476,000
Contribution margin
Fixed expenses:
Advertising, traceable
Total
$ 932,000
Depreciation of special equipment
Salaries of product-line managers
Allocated common fixed expenses*
69,400
456,000 150,000
42,700
Dirt Bikes Mountain Bikes Racing Bikes
$ 264,000
$ 409,000
$ 259,000
204,000
116,100
114,000
8,900
20,400
40,600
186,400 52,800
205,000
414,600 122,700
$ 41,400 $ 27,300
40,300
7,100
38,700
81,800
158,000
167,900
$ 37,100
101,000
20,200
15,200
36,800
Total fixed expenses
Net operating income (loss)
*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.
51,800
124,000
$ (23,000)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F297a232d-84b0-4afc-be8b-dc49e64475d0%2F92f74ab1-e2d9-4610-bd04-1f84f24e0bf0%2Ftzminbm_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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:
Sales
Variable manufacturing and selling expenses 476,000
Contribution margin
Fixed expenses:
Advertising, traceable
Total
$ 932,000
Depreciation of special equipment
Salaries of product-line managers
Allocated common fixed expenses*
69,400
456,000 150,000
42,700
Dirt Bikes Mountain Bikes Racing Bikes
$ 264,000
$ 409,000
$ 259,000
204,000
116,100
114,000
8,900
20,400
40,600
186,400 52,800
205,000
414,600 122,700
$ 41,400 $ 27,300
40,300
7,100
38,700
81,800
158,000
167,900
$ 37,100
101,000
20,200
15,200
36,800
Total fixed expenses
Net operating income (loss)
*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.
51,800
124,000
$ (23,000)
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