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Regal mpany man ictures 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) Allocated on the basis of sales dollars. Total $ 930,000 467,000 463,000 69,800 43,800 113,900 186,000 413,500 $ 49,500 Dirt Bikes $ 268,000 118,000 150,000 8,200 20,300 40,200 53,600 122,300 $ 27,700 Mountain Bikes $ 408,000 192,000 216,000 40,700 7,800 38,400 81,600 168,500 $ 47,500 Racing Bikes $ 254,000 157,000 97,000 20,900 15,700 35,300 50,800 122,700 $ (25,700)

Regal mpany man ictures 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) Allocated on the basis of sales dollars. Total $ 930,000 467,000 463,000 69,800 43,800 113,900 186,000 413,500 $ 49,500 Dirt Bikes $ 268,000 118,000 150,000 8,200 20,300 40,200 53,600 122,300 $ 27,700 Mountain Bikes $ 408,000 192,000 216,000 40,700 7,800 38,400 81,600 168,500 $ 47,500 Racing Bikes $ 254,000 157,000 97,000 20,900 15,700 35,300 50,800 122,700 $ (25,700)

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 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 $ 930,000 467,000 463,000 69,800 43,800 113,900 186,000 413,500 $ 49,500 Dirt Bikes $ 268,000 118,000 150,000 8,200 20,300 40,200 53,600 122,300 $ 27,700 Mountain Bikes $ 408,000 192,000 216,000 40,700 7,800 38,400 81,600 168,500 Racing Bikes $ 254,000 157,000 97,000 20,900 15,700 35,300 50,800 122,700 $ 47,500 $ (25,700) *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.
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 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 $ 930,000 467,000 463,000 69,800 43,800 113,900 186,000 413,500 $ 49,500 Dirt Bikes $ 268,000 118,000 150,000 8,200 20,300 40,200 53,600 122,300 $ 27,700 Mountain Bikes $ 408,000 192,000 216,000 40,700 7,800 38,400 81,600 168,500 Racing Bikes $ 254,000 157,000 97,000 20,900 15,700 35,300 50,800 122,700 $ 47,500 $ (25,700) *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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