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 $ 929,000 $265,000 $ 410,000 $ 254,000 477,000 452,000 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 118,000 204,000 155,000 147,000 206,000 99,000 68,800 43,400 114,600 185,800 412,600 8,100 20,800 40,700 53,000 122,600 40,400 7,200 38,300 82,000 167,900 20,300 15,400 35,600 50,800 122,100 Net operating income (loss) $ 39,400 $ 24,400 $ 38,100 $(23,100) *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: Dirt Bikes Mountain Bikes Racing Bikes Total $ 929,000 $265,000 $ 410,000 $ 254,000 477,000 452,000 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 118,000 204,000 155,000 147,000 206,000 99,000 68,800 43,400 114,600 185,800 412,600 8,100 20,800 40,700 53,000 122,600 40,400 7,200 38,300 82,000 167,900 20,300 15,400 35,600 50,800 122,100 Net operating income (loss) $ 39,400 $ 24,400 $ 38,100 $(23,100) *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
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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:
Dirt
Mountain
Racing
Total
Bikes
Bikes
Bikes
$929,000 $265,000 $ 410,000 $ 254,000
118,000
147,000
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
477,000
452,000
204,000
206,000
155,000
99,000
8,100
20,800
68,800
43,400
114,600
185,800
40,400
7,200
38,300
82,000
20,300
15,400
35,600
50,800
40,700
53,000
412,600
122,600
167,900
122,100
Net operating income (loss)
$ 39,400 $ 24,400 $
38,100 $(23,100)
*Allocated on the basis of sales dollars.
Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or not
the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear out.
Required:
1. What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes?
2. Should the production and sale of racing bikes be discontinued?
3. Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-run
profitability of the various product lines.
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Transcribed Image Text:Complete this question by entering your answers in the tabs below.
Required 1
Required 2
Required 3
Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-
run profitability of the various product lines.
Totals
Dirt Bikes
Mountain Bikes
Racing Bikes
Sales
Variable manufacturing and selling expenses
Contribution margin (loss)
Traceable fixed expenses:
0.
Total traceable fixed expenses
2$
2$
2$
Product line segment margin (loss)
Common fixed expenses
Net operating income (loss)
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