Exercise 12-2 Dropping or Retaining a Segment [LO12-2] 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: Dirt Bikes Mountain Bikes Racing Bikes Total Sales $ 927,000 $265,000 $ 408,000 $ 254,000 Variable manufacturing and selling 463,000 114,000 196,000 153,000 expenses Contribution margin Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* Total fixed expenses 464,000 151,000 212,000 101,000 70,300 43,900 114,900 185,400 414,500 20,500 15,500 36,200 50,800 123,000 $ 49,500 $ 28,300 $ 43,200 $(22,000) 8,900 20,700 40,100 53,000 122,700 40,900 7,700 38,600 81,600 168,800 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.
Exercise 12-2 Dropping or Retaining a Segment [LO12-2] 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: Dirt Bikes Mountain Bikes Racing Bikes Total Sales $ 927,000 $265,000 $ 408,000 $ 254,000 Variable manufacturing and selling 463,000 114,000 196,000 153,000 expenses Contribution margin Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* Total fixed expenses 464,000 151,000 212,000 101,000 70,300 43,900 114,900 185,400 414,500 20,500 15,500 36,200 50,800 123,000 $ 49,500 $ 28,300 $ 43,200 $(22,000) 8,900 20,700 40,100 53,000 122,700 40,900 7,700 38,600 81,600 168,800 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Set1 Q2. Please help
![Exercise 12-2 Dropping or Retaining a Segment [LO12-2]
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:
Dirt
Bikes
Mountain
Bikes
Racing
Bikes
Total
Sales
$ 927,000 $265,000 $ 408,000 $ 254,000
Variable manufacturing and selling
463,000
114,000
196,000
153,000
expenses
Contribution margin
Fixed expenses:
Advertising, traceable
Depreciation of special equipment
Salaries of product-line managers
Allocated common fixed expenses*
Total fixed expenses
464,000
151,000
212,000
101,000
70,300
43,900
114,900
185,400
414,500
20,500
15,500
36,200
50,800
123,000
$ 49,500 $ 28,300 $ 43,200 $(22,000)
8,900
20,700
40,100
53,000
122,700
40,900
7,700
38,600
81,600
168,800
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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F8aeb4c9c-8d33-4b47-954d-a4d3ce02aa40%2F48790de2-53ac-489e-9295-fbd5b801dce8%2Fa8rjnlq.png&w=3840&q=75)
Transcribed Image Text:Exercise 12-2 Dropping or Retaining a Segment [LO12-2]
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:
Dirt
Bikes
Mountain
Bikes
Racing
Bikes
Total
Sales
$ 927,000 $265,000 $ 408,000 $ 254,000
Variable manufacturing and selling
463,000
114,000
196,000
153,000
expenses
Contribution margin
Fixed expenses:
Advertising, traceable
Depreciation of special equipment
Salaries of product-line managers
Allocated common fixed expenses*
Total fixed expenses
464,000
151,000
212,000
101,000
70,300
43,900
114,900
185,400
414,500
20,500
15,500
36,200
50,800
123,000
$ 49,500 $ 28,300 $ 43,200 $(22,000)
8,900
20,700
40,100
53,000
122,700
40,900
7,700
38,600
81,600
168,800
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.
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