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. Total $933,000 470,000 463,000 Dirt Bikes $ 268,000 113,000 155,000 70,100 42,700 114,800 186,600 414,200 $ 48,800 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. 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. 8,600 20,200 40,100 Mountain Bikes $ 410,000 206,000 204,000 53,600 122,700 $ 32,300 Racing Bikes $ 255,000 151,000 104,000 40,500 7,300 38,400 82,000 168, 200 $ 35,800 21,000 15,200 36,100 51,000 123, 100 $(19,300) 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. Total $933,000 470,000 463,000 Dirt Bikes $ 268,000 113,000 155,000 70,100 42,700 114,800 186,600 414,200 $ 48,800 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. 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. 8,600 20,200 40,100 Mountain Bikes $ 410,000 206,000 204,000 53,600 122,700 $ 32,300 Racing Bikes $ 255,000 151,000 104,000 40,500 7,300 38,400 82,000 168, 200 $ 35,800 21,000 15,200 36,100 51,000 123, 100 $(19,300) 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)
Total
$933,000
470,000
463,000
"
70,100
42,700
114,800
186,600
414,200
$ 48,800
Dirt Bikes
$ 268,000
113,000
155,000
8,600
20,200
40,300
53,600
122,700
Mountain
Bikes
$410,000
206,000
704,000
40,500
7,300
38,400
82,000
168,200
$ 32,300 $ 35,800
Racing Bikes
$ 255,000
151,000
104,000
21,000
15,200
36,100
51,000
123, 100
$(19,300)
*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.
Transcribed Image Text: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.
Complete this question by entering your answers in the tabs below.
Required 2
Required 2
What is the financial advanaye tuisadvantage) per quarter of discontinuing the Racing Bikes?
Required 11
Show Transcribed Text
Required 3
Contribution margin (loss)
Traceable fixed expenses:
<Required 1
Total traceable fixed expenses
Product line segment margin (loss)
3
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.
Net operating income (loss)
Complete this question by entering your answers in the tabs below.
Required 11 Required 2 Required 31
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.
$
Required 2 >
< Required 2
Ć
Totals
+
0
Dirt Bikes
0
0$
0
0
Mountain Bikes Racing Bikes
0
0$
Required 3 >
0
0
0 $
0
0
0
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Step 1: Define Segmented income statement
VIEWStep 2: Calculation Financial advantage or disadvantage per quarter of discontinuing the Racing Bikes :
VIEWStep 3: 2. Decision regarding production and sales of racing bikes be discontinued
VIEWStep 4: 3. Preparation of Segmented income statement :
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