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) *Allocated on the basis of sales dollars. Total $ 930,000 Dirt Bikes 470,000 $ 263,000 119,000 460,000 144,000 Mountain Bikes $ 409,000 198,000 211,000 Racing Bikes $ 258,000 153,000 105,000 70,100 8,700 40,900 20,500 43,100 20,200 7,700 15,200 115,300 40,400 38,200 36,700 186,000 52,600 81,800 51,600 414,500 121,900 168,600 124,000 $ 45,500 $ 22,100 $ 42,400 $ (19,000) Management is considering discontinuing the racing bikes. 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?
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) *Allocated on the basis of sales dollars. Total $ 930,000 Dirt Bikes 470,000 $ 263,000 119,000 460,000 144,000 Mountain Bikes $ 409,000 198,000 211,000 Racing Bikes $ 258,000 153,000 105,000 70,100 8,700 40,900 20,500 43,100 20,200 7,700 15,200 115,300 40,400 38,200 36,700 186,000 52,600 81,800 51,600 414,500 121,900 168,600 124,000 $ 45,500 $ 22,100 $ 42,400 $ (19,000) Management is considering discontinuing the racing bikes. 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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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