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 $ 926,000 464,000 462,000 70,100 42,800 116,200 185,200 414,300 $ 47,700 Dirt Bikes $ 269,000 111,000 158,000 8,500 20,400 41,000 53,800 123,700 $ 34,300 Mountain Bikes $ 401,000 195,000 206,000 41,000 7,100 38,800 80,200 167,100 $ 38,900 Racing Bikes $ 256,000 158,000 98,000 20,600 15,300 36,400 51,200 123,500 $ (25,500) *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. 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 $ 926,000 464,000 462,000 70,100 42,800 116,200 185,200 414,300 $ 47,700 Dirt Bikes $ 269,000 111,000 158,000 8,500 20,400 41,000 53,800 123,700 $ 34,300 Mountain Bikes $ 401,000 195,000 206,000 41,000 7,100 38,800 80,200 167,100 $ 38,900 Racing Bikes $ 256,000 158,000 98,000 20,600 15,300 36,400 51,200 123,500 $ (25,500) *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. 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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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
464,000
462,000
70, 100
42,800
116, 200
185,200
414,300
$ 47,700
Dirt Bikes
$ 269,000
111,000
158,000
8,500
20,400
41,000
53,800
123,700
$ 34,300
Mountain
Bikes
$ 401,000
195,000
206,000
41,000
7,100
38,800
80,200
167,100
$ 38,900
Racing Bikes
$ 256,000
158,000
98,000
20,600
15,300
36,400
51,200
123,500
$ (25,500)
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.
Transcribed Image Text:Required 1 Required 2 Required 3
What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?
→ Show Transcribed Text
Required 1 Required 2
Required 3
Should the production and sale of racing bikes be discontinued?
Yes
ONO
Required 1 Required 2 Required 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.
Contribution margin (loss)
Traceable fixed expenses:
Total traceable fixed expenses
Product line segment margin (loss)
Net operating income (loss)
Totals
Dirt Bikes Mountain Bikes Racing Bikes
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