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 $ 926,000 $ 269,000 $ 401,000 $ 256,000 Variable manufacturing and selling 462,000 117,000 195,000 150,000 expenses Contribution margin 464,000 152,000 206,000 106,000 Fixed expenses: Advertising, traceable 69,800 8,500 40,800 20,500 Depreciation of special equipment 43,800 20,500 7,300 16,000 Salaries of product-line managers 115,100 40,900 38,500 35,700 Allocated common fixed expenses* 185,200 53,800 80,200 51,200 Total fixed expenses 413,900 123,700 166,800 123,400 Net operating income (loss) $ 50,100 $ 28,300 $ 39,200 $ (17,400) *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: Total Dirt Bikes Mountain Bikes Racing Bikes Sales $ 926,000 $ 269,000 $ 401,000 $ 256,000 Variable manufacturing and selling 462,000 117,000 195,000 150,000 expenses Contribution margin 464,000 152,000 206,000 106,000 Fixed expenses: Advertising, traceable 69,800 8,500 40,800 20,500 Depreciation of special equipment 43,800 20,500 7,300 16,000 Salaries of product-line managers 115,100 40,900 38,500 35,700 Allocated common fixed expenses* 185,200 53,800 80,200 51,200 Total fixed expenses 413,900 123,700 166,800 123,400 Net operating income (loss) $ 50,100 $ 28,300 $ 39,200 $ (17,400) *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:
Total
Dirt
Bikes
Mountain
Bikes
Racing
Bikes
Sales
$ 926,000
$ 269,000 $ 401,000 $ 256,000
Variable manufacturing and selling
462,000
117,000
195,000
150,000
expenses
Contribution margin
464,000
152,000
206,000
106,000
Fixed expenses:
Advertising, traceable
69,800
8,500
40,800
20,500
Depreciation of special equipment
43,800
20,500
7,300
16,000
Salaries of product-line managers
115,100
40,900
38,500
35,700
Allocated common fixed expenses*
185,200
53,800
80,200
51,200
Total fixed expenses
413,900
123,700
166,800
123,400
Net operating income (loss)
$ 50,100
$ 28,300
$ 39,200
$ (17,400)
*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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