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: TotalDirt Bikes Mountain BikesRacing Bikes Sales$ 925,000$ 264,000$ 408,000$ 253,000 Variable manufacturing and selling expenses 461,000110, 000196, 000155,000 Contribution margin464, 000154, 000212, 00098, 000Fixed expenses: Advertising, traceable69, 7009, 00040, 50020, 200Depreciation of special equipment43, 60020, 7007, 50015, 400Salaries of product-line managers115, 20040, 20038, 50036, 500 Allocated common fixed expenses Footnote asterisk185, 00052, 80081, 60050, 600 Total fixed expenses413, 500122, 700168, 100122,700 Net operating income (loss)$ 50, 500$ 31, 300$ 43,900$ (24,700) *Footnote asteriskAllocated 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: What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Should the production and sale of racing bikes be discontinued? 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: TotalDirt Bikes Mountain BikesRacing Bikes Sales$ 925,000$ 264,000$ 408,000$ 253,000 Variable manufacturing and selling expenses 461,000110, 000196, 000155,000 Contribution margin464, 000154, 000212, 00098, 000Fixed expenses: Advertising, traceable69, 7009, 00040, 50020, 200Depreciation of special equipment43, 60020, 7007, 50015, 400Salaries of product-line managers115, 20040, 20038, 50036, 500 Allocated common fixed expenses Footnote asterisk185, 00052, 80081, 60050, 600 Total fixed expenses413, 500122, 700168, 100122,700 Net operating income (loss)$ 50, 500$ 31, 300$ 43,900$ (24,700) *Footnote asteriskAllocated 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: What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Should the production and sale of racing bikes be discontinued? 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:
TotalDirt Bikes Mountain BikesRacing Bikes Sales$ 925,000$ 264,000$ 408,000$ 253,000 Variable manufacturing and selling
expenses 461,000110, 000196, 000155,000 Contribution margin464, 000154, 000212, 00098, 000Fixed expenses: Advertising,
traceable69, 7009, 00040, 50020, 200Depreciation of special equipment43, 60020, 7007, 50015, 400Salaries of product-line
managers115, 20040, 20038, 50036, 500 Allocated common fixed expenses Footnote asterisk185, 00052, 80081, 60050, 600 Total
fixed expenses413, 500122, 700168, 100122,700 Net operating income (loss)$ 50, 500$ 31, 300$ 43,900$ (24,700)
*Footnote asteriskAllocated 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:
What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?
Should the production and sale of racing bikes be discontinued?
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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