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 $ 924,000 469,000 455,000 $ 266,000 116,000 150,000 Mountain Bikes $ 408,000 195,000 213,000 Racing Bikes $ 250,000 158,000 92,000 69,400 8,300 40,300 20,800 42,900 20,200 7,300 15,400 115,200 40,900 38,400 35,900 184,800 53,200 81,600 50,000 412,300 122,600 167,600 122,100 $ 42,700 $ 27,400 $ 45,400 $ (30,100) 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. Complete this question by entering your answers in the tabs below.
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 $ 924,000 469,000 455,000 $ 266,000 116,000 150,000 Mountain Bikes $ 408,000 195,000 213,000 Racing Bikes $ 250,000 158,000 92,000 69,400 8,300 40,300 20,800 42,900 20,200 7,300 15,400 115,200 40,900 38,400 35,900 184,800 53,200 81,600 50,000 412,300 122,600 167,600 122,100 $ 42,700 $ 27,400 $ 45,400 $ (30,100) 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. Complete this question by entering your answers in the tabs below.
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
es
Net operating income (loss)
"Allocated on the basis of sales dollars.
Total
$ 924,000
469,000
Dirt Bikes
455,000
$ 266,000
116,000
150,000
Mountain
Bikes
$ 408,000
195,000
213,000
Racing Bikes
$ 250,000
158,000
92,000
69,400
8,300
40,300
20,800
42,900
20,200
7,300
15,400
115,200
40,900
38,400
35,900
184,800
53,200
81,600
50,000
412,300
122,600
167,600
122,100
$ 42,700
$ 27,400
$ 45,400
$ (30,100)
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.
Complete this question by entering your answers in the tabs below.
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