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 $ 926,000 470,000 456,000 68,900 43,800 113,600 185,200 411,500 $ 44,500 Dirt Bikes $ 269,000 116,000 153,000 8,100 20,600 40,100 53,800 122,600 $ 30,400 Mountain Bikes $ 404,000 204,000 200,000 40,600 7,600 38,400 80, 800 167,400 $ 32,600 Racing Bikes $ 253,000 150,000 103,000 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, 200 15,600 35,100 50,600 121,500 $ (18,500) *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 $ 926,000 470,000 456,000 68,900 43,800 113,600 185,200 411,500 $ 44,500 Dirt Bikes $ 269,000 116,000 153,000 8,100 20,600 40,100 53,800 122,600 $ 30,400 Mountain Bikes $ 404,000 204,000 200,000 40,600 7,600 38,400 80, 800 167,400 $ 32,600 Racing Bikes $ 253,000 150,000 103,000 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, 200 15,600 35,100 50,600 121,500 $ (18,500) *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.
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:
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
$ 926,000
470,000
456,000
Required 1
68,900
43,800
113,600
185, 200
411,500
$ 44,500
Required 2 Required 3
Dirt Bikes
$ 269,000
116,000
153,000
8,100
20,600
40,100
53,800
122,600
$ 30,400
Complete this question by entering your answers in the tabs below.
< Required 1
Mountain
Bikes
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.
$ 404,000
204,000
200,000
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?
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.
40, 600
7,600
38,400
80, 800
167,400
$ 32,600
Required 2 >
What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?
Racing Bikes
$ 253,000
150,000
103,000
20, 200
15,600
35,100
50,600
121,500
$ (18,500)
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