he Regal Cycle Company manu
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![Exercise 13-2 (Algo) Dropping or Retaining a Segment [LO13-2]
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:
Sales
Variable manufacturing and selling expenses
Contribution margin
Fixed expenses:
Advertising, traceable.
Depreciation of special equipment
Salaries of product-line managers
Allocated common fixed expenses
Total fixed expenses
Net operating income (loss)
Total
$930,000
477,000
453,000
69,600
44,300
114,200
156,000
414,100
$ 38,900
Dirt Bikes
$ 268,000
115,000
153,000
8,500
20,900
40,600
53,600
123,600
Mountain
Bikes
$ 405,000
210,000
195,000
Racing Bikes
$257,000
152,000
105,000
40,500
20,600
7,500
15,900
38,600
35,000
81,000
51,400
167,600
122,900
$ 29,400 $ 27,400 $ (17,900)
"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%2Fc7fe5a73-45e4-4166-8ba1-50e355550dfc%2F7f69a305-40fe-4692-887c-d374129e496a%2F5upbw48_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Exercise 13-2 (Algo) Dropping or Retaining a Segment [LO13-2]
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:
Sales
Variable manufacturing and selling expenses
Contribution margin
Fixed expenses:
Advertising, traceable.
Depreciation of special equipment
Salaries of product-line managers
Allocated common fixed expenses
Total fixed expenses
Net operating income (loss)
Total
$930,000
477,000
453,000
69,600
44,300
114,200
156,000
414,100
$ 38,900
Dirt Bikes
$ 268,000
115,000
153,000
8,500
20,900
40,600
53,600
123,600
Mountain
Bikes
$ 405,000
210,000
195,000
Racing Bikes
$257,000
152,000
105,000
40,500
20,600
7,500
15,900
38,600
35,000
81,000
51,400
167,600
122,900
$ 29,400 $ 27,400 $ (17,900)
"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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