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: Mountain Dirt Bikes $ 269,000 119,000 150,000 Total Bikes $ 925,000 466,000 459,000 $ 402,000 196,000 206,000 Racing Bikes $ 254,000 151,000 103,000 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 70,300 43,300 116,100 185,000 414,700 40,600 7,700 38,600 80,400 167,300 9,000 20,100 41,000 53,800 20,700 15,500 36,500 50,800 123,500 123,900 Net operating income (loss) $ 44,300 $ 26,100 $ 38,700 $ (20,500) *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.
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: Mountain Dirt Bikes $ 269,000 119,000 150,000 Total Bikes $ 925,000 466,000 459,000 $ 402,000 196,000 206,000 Racing Bikes $ 254,000 151,000 103,000 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 70,300 43,300 116,100 185,000 414,700 40,600 7,700 38,600 80,400 167,300 9,000 20,100 41,000 53,800 20,700 15,500 36,500 50,800 123,500 123,900 Net operating income (loss) $ 44,300 $ 26,100 $ 38,700 $ (20,500) *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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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:
Mountain
Racing Bikes
$ 254,000
151,000
Total
Dirt Bikes
Bikes
$ 925,000
466,000
459,000
$ 269,000
119,000
150,000
$ 402,000
196,000
206,000
Sales
Variable manufacturing and selling expenses
Contribution margin
Fixed expenses:
103,000
Advertising, traceable
Depreciation of special equipment
Salaries of product-line managers
Allocated common fixed expenses*
Total fixed expenses
70,300
43,300
116,100
185,000
414,700
$ 44,300
9,000
20,100
41,000
53,800
123,900
$ 26,100
40,600
7,700
38,600
80,400
167,300
20,700
15,500
36,500
50,800
123,500
$ (20,500)
Net operating income (loss)
$ 38,700
*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 (disadvar
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.
per quarter of discontinuing the Racing Bikes?
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