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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.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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)
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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