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 $ 920,000 476,000 444,000 Dirt Bikes $ 265,000 120,000 145,000 Mountain Bikes $400,000 198,000 Racing Bikes $ 255,000 158,000 202,000 97,000 69,100 8,400 40,300 20,400 44,000 20,800 7,900 15,300 115,400 40,500 38,200 36,700 184,000 53,000 80,000 51,000 412,500 122,700 166,400 123,400 $ 31,500 $ 22,300 $ 35,600 $ (26,400) Management is considering discontinuing the racing bikes. 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?
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 $ 920,000 476,000 444,000 Dirt Bikes $ 265,000 120,000 145,000 Mountain Bikes $400,000 198,000 Racing Bikes $ 255,000 158,000 202,000 97,000 69,100 8,400 40,300 20,400 44,000 20,800 7,900 15,300 115,400 40,500 38,200 36,700 184,000 53,000 80,000 51,000 412,500 122,700 166,400 123,400 $ 31,500 $ 22,300 $ 35,600 $ (26,400) Management is considering discontinuing the racing bikes. 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?
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)
*Allocated on the basis of sales dollars.
Total
$ 920,000
476,000
444,000
Dirt Bikes
$ 265,000
120,000
145,000
Mountain
Bikes
$400,000
198,000
Racing Bikes
$ 255,000
158,000
202,000
97,000
69,100
8,400
40,300
20,400
44,000
20,800
7,900
15,300
115,400
40,500
38,200
36,700
184,000
53,000
80,000
51,000
412,500
122,700
166,400
123,400
$ 31,500
$ 22,300
$ 35,600 $ (26,400)
Management is considering discontinuing the racing bikes. 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?
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