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 Bikes $ 929,000 $269,000 $400,000 $ 260,000 Dirt Bikes Racing Bikes Total Sales Variable manufacturing and selling 466,000 118,000 193,000 155,000 expenses Contribution margin Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* Total fixed expenses 463,000 151,000 207,000 105,000 69,400 43,300 114,800 185,800 413,300 8,900 20,300 40,300 53,800 20,400 15,800 35,700 52,000 123,900 40,100 7,200 38,800 80,000 166,100 $ 49,700 $ 27,700 $ 40,900 $(18,900) 123,300 Net operating income (loss) "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 Bikes $ 929,000 $269,000 $400,000 $ 260,000 Dirt Bikes Racing Bikes Total Sales Variable manufacturing and selling 466,000 118,000 193,000 155,000 expenses Contribution margin Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* Total fixed expenses 463,000 151,000 207,000 105,000 69,400 43,300 114,800 185,800 413,300 8,900 20,300 40,300 53,800 20,400 15,800 35,700 52,000 123,900 40,100 7,200 38,800 80,000 166,100 $ 49,700 $ 27,700 $ 40,900 $(18,900) 123,300 Net operating income (loss) "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
Bikes
$ 929,000 $269,000 $400,000 $ 260,000
Dirt
Bikes
Racing
Bikes
Total
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
466,000 118,000 193,000
155,000
463,000
151,000
207,000
105,000
69,400
43,300
114,800
185,800
413,300
8,900
20,300
40,300
53,800
40,100
7,200
38,800
20,400
15,800
35,700
52,000
123,900
80,000
166,100
$ 49,700 $ 27,700 $ 40,900 $(18,900)
123,300
es
Net operating income (loss)
*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:Complete this question by entering your answers in the tabs below.
Required 1
Required 2
Required 3
What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes?
Required 1
Required 2
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