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 Dirt Bikes $ 932,000 468,000 $ 269,000 464,000 118,000 151,000 Mountain Bikes $ 407,000 196,000 Racing Bikes $ 256,000 154,000 211,000 102,000 69,400 8,800 40,200 20,400 44,100 20,500 7,900 15,700 114,100 40,200 38,500 35,400 186,400 53,800 81,400 51,200 414,000 123,300 168,000 122,700 $ 50,000 $ 27,700 $ 43,000 $ (20,700) 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) *Allocated on the basis of sales dollars. Total Dirt Bikes $ 932,000 468,000 $ 269,000 464,000 118,000 151,000 Mountain Bikes $ 407,000 196,000 Racing Bikes $ 256,000 154,000 211,000 102,000 69,400 8,800 40,200 20,400 44,100 20,500 7,900 15,700 114,100 40,200 38,500 35,400 186,400 53,800 81,400 51,200 414,000 123,300 168,000 122,700 $ 50,000 $ 27,700 $ 43,000 $ (20,700) 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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![Exercise 11-2 (Algo) Dropping or Retaining a Segment [LO11-2]
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
$ 932,000
468,000
464,000
Dirt Bikes
$ 269,000
118,000
151,000
Mountain
Bikes
$ 407,000
Racing Bikes
$ 256,000
196,000
211,000
154,000
102,000
69,400
8,800
40,200
20,400
44,100
20,500
7,900
15,700
114,100
40,200
38,500
35,400
186,400
53,800
81,400
51,200
414,000
123,300
168,000
122,700
$ 50,000
$ 27,700
$ 43,000
$ (20,700)
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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fdcfb0428-8e62-41c8-9d2b-3e4003f8af75%2F7ecaffd3-20a2-4408-be40-e7cb4e110c4b%2F6cgeffa_processed.png&w=3840&q=75)
Transcribed Image Text:Exercise 11-2 (Algo) Dropping or Retaining a Segment [LO11-2]
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
$ 932,000
468,000
464,000
Dirt Bikes
$ 269,000
118,000
151,000
Mountain
Bikes
$ 407,000
Racing Bikes
$ 256,000
196,000
211,000
154,000
102,000
69,400
8,800
40,200
20,400
44,100
20,500
7,900
15,700
114,100
40,200
38,500
35,400
186,400
53,800
81,400
51,200
414,000
123,300
168,000
122,700
$ 50,000
$ 27,700
$ 43,000
$ (20,700)
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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