Exercise 11-2 (Algo) Dropping or Retaining a Segment [LO11-2] 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: Total Dirt Bikes Mountain Bikes Racing Bikes Sales $ 932,000 $ 269,000 S 408,000 $ 255,000 Variable manufacturing and selling expenses 480,000 119,000 205,000 156,000 Contribution margin 452,000 150,000 203,000 99,000 Fixed expenses: Advertising, traceable 68,800 8,100 40, 200 20,500 Depreciation of special equipment 44,400 20,800 7,800 15,800 Salaries of product-line managers 115,700 40, 200 38,700 36,800 Allocated common fixed expenses* 186,400 53,800 81,600 51,000 Total fixed expenses 415,300 122,900 168,300 124,100 Net operating income (loss) S 36,700 S 27,100 $ 34,700 S (25,100) *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. Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required 1 Required 2 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Financial advantage (disadvantage) per quarter $25, 100Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. 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. ? Answer is complete but not entirely correct. 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. Sales Variable manufacturing and selling expenses Contribution margin (loss) Traceable fixed expenses: Advertising, traceable Totals $ 932,000 480,000 452,000 Dirt Bikes $ 269,000 Mountain Bikes Racing Bikes 408,000 $ 255,000 119,000 205,000 156,000 150,000 203,000 99,000 68,800 8,100 40,200 20,500 Depreciation of special equipment 44,400 20,800 7,800 15,800 Salaries of the product line managers 115,700 40,200 81,600 x 51,000 Total traceable fixed expenses 228,900 69,100 129,600 87,300 Product line segment margin (loss) 223,100 $ 80,900 $ 73,400 $ 11,700 Common fixed expenses 186,400 Net operating income (loss) $ 36,700

Exercise 11-2 (Algo) Dropping or Retaining a Segment [LO11-2] 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: Total Dirt Bikes Mountain Bikes Racing Bikes Sales $ 932,000 $ 269,000 S 408,000 $ 255,000 Variable manufacturing and selling expenses 480,000 119,000 205,000 156,000 Contribution margin 452,000 150,000 203,000 99,000 Fixed expenses: Advertising, traceable 68,800 8,100 40, 200 20,500 Depreciation of special equipment 44,400 20,800 7,800 15,800 Salaries of product-line managers 115,700 40, 200 38,700 36,800 Allocated common fixed expenses* 186,400 53,800 81,600 51,000 Total fixed expenses 415,300 122,900 168,300 124,100 Net operating income (loss) S 36,700 S 27,100 $ 34,700 S (25,100) *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. Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required 1 Required 2 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Financial advantage (disadvantage) per quarter $25, 100Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. 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. ? Answer is complete but not entirely correct. 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. Sales Variable manufacturing and selling expenses Contribution margin (loss) Traceable fixed expenses: Advertising, traceable Totals $ 932,000 480,000 452,000 Dirt Bikes $ 269,000 Mountain Bikes Racing Bikes 408,000 $ 255,000 119,000 205,000 156,000 150,000 203,000 99,000 68,800 8,100 40,200 20,500 Depreciation of special equipment 44,400 20,800 7,800 15,800 Salaries of the product line managers 115,700 40,200 81,600 x 51,000 Total traceable fixed expenses 228,900 69,100 129,600 87,300 Product line segment margin (loss) 223,100 $ 80,900 $ 73,400 $ 11,700 Common fixed expenses 186,400 Net operating income (loss) $ 36,700

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter11: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 11.5.5P

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