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 $ 920,000 481,000 439,000 70,000 43,700 115,800 184,000 413,500 $ 25,500 Dirt Bikes $ 263,000 114,000 149,000 8,800 20, 200 40,300 52,600 121,900 $ 27,100 Mountain Bikes Racing Bikes $ 401,000 $ 256,000 209,000 158,000 192,000 98,000 40,600 7,600 38,900 80, 200 167,300 $ 24,700 20,600 15,900 36,600 51,200 124,300 $ (26,300) *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: 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 $ 920,000 481,000 439,000 70,000 43,700 115,800 184,000 413,500 $ 25,500 Dirt Bikes $ 263,000 114,000 149,000 8,800 20, 200 40,300 52,600 121,900 $ 27,100 Mountain Bikes Racing Bikes $ 401,000 $ 256,000 209,000 158,000 192,000 98,000 40,600 7,600 38,900 80, 200 167,300 $ 24,700 20,600 15,900 36,600 51,200 124,300 $ (26,300) *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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Subject: accounting
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
$ 920,000
481,000
439,000
70,000
43,700
115,800
184,000
413,500
$ 25,500
Dirt Bikes
$ 263,000
114,000
149,000
8,800
20, 200
40,300
52,600
121,900
$ 27,100
Mountain Bikes
$ 401,000
209,000
192,000
40,600
7,600
38,900
80, 200
167,300
$ 24,700
Racing Bikes
$ 256,000
158,000
98,000
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?
20,600
15,900
36,600
51,200
124,300
$ (26,300)
*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.
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