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 $927,000 464,000 463,000 70, 200 42,900 115,700 185,400 414, 200 $ 48,800 Dirt Bikes $ 269,000 118,000 151,000 Mountain Bikes $ 403,000 196,000 207,000 Racing Bikes $255,000 150,000 105,000 8,600 40,800 20,800 20,300 7,400 15, 200 40,500 38,400 36,800 53,800 80,600 51,000 123,200 167,200 123,800 $ 27,800 $ 39,800 $ (18,800) 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) *Allocated on the basis of sales dollars. Total $927,000 464,000 463,000 70, 200 42,900 115,700 185,400 414, 200 $ 48,800 Dirt Bikes $ 269,000 118,000 151,000 Mountain Bikes $ 403,000 196,000 207,000 Racing Bikes $255,000 150,000 105,000 8,600 40,800 20,800 20,300 7,400 15, 200 40,500 38,400 36,800 53,800 80,600 51,000 123,200 167,200 123,800 $ 27,800 $ 39,800 $ (18,800) 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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Question
T2.
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
$ 927,000
464,000
463,000
Required 1
70, 200
42,900
115,700
185,400
414, 200
$ 48,800
Complete this question by entering your answers in the tabs below.
Required 2 Required 3
Dirt Bikes
$ 269,000
118,000
151,000
< Required 1
8,600
20, 300
40,500
53,800
123, 200
$ 27,800
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.
Mountain
Bikes
$ 403,000
196,000
207,000
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.
40,800
7,400
20,800
15, 200
38,400
36,800
80,600
51,000
123,800
167,200
$ 39,800 $ (18,800)
What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?
Required 2 >
Racing Bikes
$ 255,000
150,000
105,000
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