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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) Total $ 923,000 467,000 456, 000 70, 500 44, 100 114,500 184, 600 413, 700 $42,300 Dirt Bikes $ 265,000 111, 000 154,000 8,600 20, 600 40, 700 53,000 122, 900 $31, 100 Mountain Bikes $408,000 202,000 206, 000 41,000 7,900 38,600 81, 600 169, 100 $ 36,900 Racing Bikes $ 250,000 154,000 96,000 20,900 15,600 35, 200 50,000 121, 700 $ (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: 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) Total $ 923,000 467,000 456, 000 70, 500 44, 100 114,500 184, 600 413, 700 $42,300 Dirt Bikes $ 265,000 111, 000 154,000 8,600 20, 600 40, 700 53,000 122, 900 $31, 100 Mountain Bikes $408,000 202,000 206, 000 41,000 7,900 38,600 81, 600 169, 100 $ 36,900 Racing Bikes $ 250,000 154,000 96,000 20,900 15,600 35, 200 50,000 121, 700 $ (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.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Exercise 13-2 (Algo) Dropping or Retaining a Segment [LO13-2] 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: Total $ 923,000 467,000 456, 000 Required 1 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. 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 2 Required 3 70, 500 44, 100 Dirt Bikes $ 265,000 111, 000 154,000 114, 500 184, 600 413, 700 $ 42,300 Complete this question by entering your answers in the tabs below. < Required 1 8,600 20, 600 40, 700 53,000 122, 900 $31, 100 Mountain Bikes $ 408,000 202, 000 206, 000 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. 41,000 7,900 38, 600 81, 600 169, 100 $ 36,900 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Required 2 > Racing Bikes $ 250,000 154,000 96,000 20, 900 15,600 35, 200 50,000 121, 700 $ (25, 700)
Transcribed Image Text:Exercise 13-2 (Algo) Dropping or Retaining a Segment [LO13-2] 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: Total $ 923,000 467,000 456, 000 Required 1 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. 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 2 Required 3 70, 500 44, 100 Dirt Bikes $ 265,000 111, 000 154,000 114, 500 184, 600 413, 700 $ 42,300 Complete this question by entering your answers in the tabs below. < Required 1 8,600 20, 600 40, 700 53,000 122, 900 $31, 100 Mountain Bikes $ 408,000 202, 000 206, 000 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. 41,000 7,900 38, 600 81, 600 169, 100 $ 36,900 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Required 2 > Racing Bikes $ 250,000 154,000 96,000 20, 900 15,600 35, 200 50,000 121, 700 $ (25, 700)
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