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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) *Allocated on the basis of sales dollars. Total $ 921,000 Dirt Bikes 473,000 448,000 $ 262,000 115,000 147,000 Mountain Bikes $ 402,000 200,000 Racing Bikes $ 257,000 158,000 202,000 99,000 69,000 8,100 40,800 20,100 44,600 20,800 7,900 15,900 115,900 40,600 38,700 36,600 184,200 52,400 80,400 51,400 413,700 121,900 167,800 124,000 $ 34,300 $ 25,100 $ 34,200 $ (25,000) 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 $ 921,000 Dirt Bikes 473,000 448,000 $ 262,000 115,000 147,000 Mountain Bikes $ 402,000 200,000 Racing Bikes $ 257,000 158,000 202,000 99,000 69,000 8,100 40,800 20,100 44,600 20,800 7,900 15,900 115,900 40,600 38,700 36,600 184,200 52,400 80,400 51,400 413,700 121,900 167,800 124,000 $ 34,300 $ 25,100 $ 34,200 $ (25,000) 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.

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter2: Basic Cost Management Concepts
Section: Chapter Questions
Problem 22E: Ellerson Company provided the following information for the last calendar year: During the year,...
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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) *Allocated on the basis of sales dollars. Total $ 921,000 Dirt Bikes 473,000 448,000 $ 262,000 115,000 147,000 Mountain Bikes $ 402,000 200,000 Racing Bikes $ 257,000 158,000 202,000 99,000 69,000 8,100 40,800 20,100 44,600 20,800 7,900 15,900 115,900 40,600 38,700 36,600 184,200 52,400 80,400 51,400 413,700 121,900 167,800 124,000 $ 34,300 $ 25,100 $ 34,200 $ (25,000) 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: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 $ 921,000 Dirt Bikes 473,000 448,000 $ 262,000 115,000 147,000 Mountain Bikes $ 402,000 200,000 Racing Bikes $ 257,000 158,000 202,000 99,000 69,000 8,100 40,800 20,100 44,600 20,800 7,900 15,900 115,900 40,600 38,700 36,600 184,200 52,400 80,400 51,400 413,700 121,900 167,800 124,000 $ 34,300 $ 25,100 $ 34,200 $ (25,000) 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.
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