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 Racing Bikes $ 256,000 159,000 97,000 Total Dirt Bikes Bikes $ 927,000 463,000 464,000 $ 265,000 112,000 153,000 $ 406,000 192,000 214,000 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 69,100 43,500 8,700 20,700 40,200 7,200 38,500 20,200 15,600 115,100 185,400 413,100 40,900 35,700 53,000 123,300 81,200 167,100 51,200 122,700 Net operating income (loss) $ 50,900 $ 29,700 $ 46,900 $ (25,700) "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: Mountain Racing Bikes $ 256,000 159,000 97,000 Total Dirt Bikes Bikes $ 927,000 463,000 464,000 $ 265,000 112,000 153,000 $ 406,000 192,000 214,000 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 69,100 43,500 8,700 20,700 40,200 7,200 38,500 20,200 15,600 115,100 185,400 413,100 40,900 35,700 53,000 123,300 81,200 167,100 51,200 122,700 Net operating income (loss) $ 50,900 $ 29,700 $ 46,900 $ (25,700) "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: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
Racing Bikes
$ 256,000
159,000
97,000
Total
Dirt Bikes
Bikes
$ 927,000
463,000
464,000
$ 265,000
112,000
153,000
$ 406,000
192,000
Sales
Variable manufacturing and selling expenses
Contribution margin
Fixed expenses:
214,000
Advertising, traceable
Depreciation of special equipment
Salaries of product-line managers
Allocated common fixed expenses*
Total fixed expenses
69,100
43,500
115,100
185,400
413,100
8,700
20,700
40,900
40,200
7,200
38,500
81,200
20,200
15,600
35,700
53,000
123,300
51,200
122,700
167,100
Net operating income (loss)
$ 50,900
$ 29,700
$ 46,900
$ (25,700)
"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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