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 $ 929,000 475,000 454,000 70,200 43,300 114,500 185,800 413,800 $40,200 Dirt Bikes $ 266,000 110,000 148,000 8,700 20,700 40,100 53,200 122,700 $25,300 Mountain Bikes $ 407,000 203,000 204,000 Racing Bikes $ 256,000 154,000 102,000 40,900 7,500 39,000 81,400 168,800 $ 35,200 $ (20,300) 20,600 15,100 35,400 51,200 122,300 "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 $ 929,000 475,000 454,000 70,200 43,300 114,500 185,800 413,800 $40,200 Dirt Bikes $ 266,000 110,000 148,000 8,700 20,700 40,100 53,200 122,700 $25,300 Mountain Bikes $ 407,000 203,000 204,000 Racing Bikes $ 256,000 154,000 102,000 40,900 7,500 39,000 81,400 168,800 $ 35,200 $ (20,300) 20,600 15,100 35,400 51,200 122,300 "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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H1.
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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
$ 929,000
475,000
454,000
70,200
43,300
114,500
185,800
413,800
$40,200
Dirt Bikes
$ 266,000
118,000
148,000
8,700
20,700
40,100
53,200
122,700
Mountain
Bikes
$407,000
203,000
204,000
Racing Bikes
$ 256,000
154,000
102,000
40,900
7,500
39,000
81,400
168,00
$25,300 $ 35,200 $ (20,300)
20,600
15,100
35,400
51,200
122,300
"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,
S
23
S
2025
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