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 $933,000 473,000 460,000 69,500 43,400 115,600 186,600 415,100 $ 44,900 Dirt Bikes $ 269,000 113,000 156,000 8,400 20,600 40,500 53,800 123, 300 $ 32,700 Mountain Bikes $ 407,000 201,000 206,000 40,600 7,200 38,800 81,400 168,000 $ 38,000 Racing Bikes $ 257,000 159,000 98,000 20,500 15,600 36,300 51,400 123,800 $ (25,800) "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 $933,000 473,000 460,000 69,500 43,400 115,600 186,600 415,100 $ 44,900 Dirt Bikes $ 269,000 113,000 156,000 8,400 20,600 40,500 53,800 123, 300 $ 32,700 Mountain Bikes $ 407,000 201,000 206,000 40,600 7,200 38,800 81,400 168,000 $ 38,000 Racing Bikes $ 257,000 159,000 98,000 20,500 15,600 36,300 51,400 123,800 $ (25,800) "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:ok
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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 margini
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
473,000
460,000
69,500
43,400
115,600
186,600
415,100
$ 44,900
Dirt Bikes
$ 269,000
113,000
156,000
Required 1 Required 2 Required 3
8,400
20,600
40,500
53,800
123, 100
Complete this question by entering your answers in the tabs below.
Mountain
Bikes
$ 407,000
201,000
206,000
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.
profitability of the various product lines.
"Allocated on the basis of sales dollars.
Management is concerned about the continued losses shown by the racing bikes and wants a recommend ion as to whether or
the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear out
Racing Bikes
$ 257,000
159,000
98,000
40,600
7,200
38,800
81,400
168,000
$ 32,700 $ 38,000 $ (25,800)
Nout
20,500
15,600
36,300
51,400
123,800
management in assessing the long-run
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