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 $ 926,000 468,000 458,000 Mountain Bikes $ 403,000 193,000 210,000 Racing Bikes $ 259,000 158,000 101,000 Dirt Bikes $ 264,000 117,000 147,000 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 70,300 44,800 114,600 185,200 414,900 $ 43,100 8,800 21,000 40,300 52,800 122,900 $ 24,100 40,700 8,000 38,600 ৪০,600 167,900 $ 42,100 20,800 15,800 35,700 51,800 124,100 $ (23,100) 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. Required: 1. What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? 2. Should 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. production and sale of racing bikes be discontinued?
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 $ 926,000 468,000 458,000 Mountain Bikes $ 403,000 193,000 210,000 Racing Bikes $ 259,000 158,000 101,000 Dirt Bikes $ 264,000 117,000 147,000 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 70,300 44,800 114,600 185,200 414,900 $ 43,100 8,800 21,000 40,300 52,800 122,900 $ 24,100 40,700 8,000 38,600 ৪০,600 167,900 $ 42,100 20,800 15,800 35,700 51,800 124,100 $ (23,100) 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. Required: 1. What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? 2. Should 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. production and sale of racing bikes be discontinued?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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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:
Mountain
Total
$ 926,000
468,000
458,000
Dirt Bikes
$ 264,000
117,000
147,000
Racing Bikes
$ 259,000
158,000
101,000
Bikes
$ 403,000
193,000
210,000
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
70,300
44,800
114,600
185,200
414,900
$ 43,100
8,800
21,000
40,300
52,800
122,900
40,700
8,000
38,600
8০,600
167,900
$ 42,100
20,800
15,800
35,700
51,800
124,100
Net operating income (loss)
$ 24,100
$ (23,100)
"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.
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