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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 $ 922,000 476,000 446,000 70,500 43,900 115,500 184,400 414,300 $ 31,700 Dirt Bikes $ 262,000 111,000 151,000 Mountain Bikes $ 406,000 207,000 199,000 8,900 20,800 40,800 52,400 122,900 40,900 7,300 38,900 81,200 168,300 $ 28,100 $ 30,700 Racing Bikes $ 254,000 158,000 96,000 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? 20,700 15,800 35,800 50,800 123,100 $ (27,100) *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. 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: 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 $ 922,000 476,000 446,000 70,500 43,900 115,500 184,400 414,300 $ 31,700 Dirt Bikes $ 262,000 111,000 151,000 Mountain Bikes $ 406,000 207,000 199,000 8,900 20,800 40,800 52,400 122,900 40,900 7,300 38,900 81,200 168,300 $ 28,100 $ 30,700 Racing Bikes $ 254,000 158,000 96,000 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? 20,700 15,800 35,800 50,800 123,100 $ (27,100) *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. 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.

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 $ 922,000 476,000 446,000 70,500 43,900 115,500 184,400 414,300 $ 31,700 Dirt Bikes $ 262,000 111,000 151,000 8,900 20,800 40,800 52,400 122,900 $ 28,100 Mountain Bikes $ 406,000 207,000 199,000 40,900 7,300 38,900 81,200 168,300 $ 30,700 Racing Bikes $ 254,000 158,000 96,000 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? 20,700 15,800 35,800 50,800 123,100 $ (27,100) *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. 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 $ 922,000 476,000 446,000 70,500 43,900 115,500 184,400 414,300 $ 31,700 Dirt Bikes $ 262,000 111,000 151,000 8,900 20,800 40,800 52,400 122,900 $ 28,100 Mountain Bikes $ 406,000 207,000 199,000 40,900 7,300 38,900 81,200 168,300 $ 30,700 Racing Bikes $ 254,000 158,000 96,000 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? 20,700 15,800 35,800 50,800 123,100 $ (27,100) *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. 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.
Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Required 1 Required 2 Contribution margin (loss) Traceable fixed expenses: < Total traceable fixed expenses Product line segment margin (loss) Required 1 Should the production and sale of racing bikes be discontinued? Yes ONO Net operating income (loss) Required 3 Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-ru profitability of the various product lines. Required 2 > Totals Dirt Bikes Mountain Bikes Racing Bikes
Transcribed Image Text:Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Required 1 Required 2 Contribution margin (loss) Traceable fixed expenses: < Total traceable fixed expenses Product line segment margin (loss) Required 1 Should the production and sale of racing bikes be discontinued? Yes ONO Net operating income (loss) Required 3 Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-ru profitability of the various product lines. Required 2 > Totals Dirt Bikes Mountain Bikes Racing Bikes
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