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: Dirt Bikes Racing Bikes Mountain Bikes $ 931,000 $ 269,000 $ 407,000 $ 255,000 192,000 215,000 Total 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 466,000 465,000 116,000 153,000 158,000 97,000 69,900 43,400 115,500 186,200 415,000 $ 50,000 $ 29,700 $ 46,800 $(26, 500) 8,700 20,300 40,500 53,800 123,300 40,900 7,200 38,700 81,400 168, 200 20, 300 15,900 36,300 51,000 123,500 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: 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: Dirt Bikes Racing Bikes Mountain Bikes $ 931,000 $ 269,000 $ 407,000 $ 255,000 192,000 215,000 Total 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 466,000 465,000 116,000 153,000 158,000 97,000 69,900 43,400 115,500 186,200 415,000 $ 50,000 $ 29,700 $ 46,800 $(26, 500) 8,700 20,300 40,500 53,800 123,300 40,900 7,200 38,700 81,400 168, 200 20, 300 15,900 36,300 51,000 123,500 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: 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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Question
Solve questions 1 and 3
1. What is the financial advantage per quarter of discontinuing the Racing bikes?
3. Prepare a properly formatted segment income statement that would be more useful to management in assessing the long-run profitability of the various product lines.
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:
Dirt
Mountain
Bikes
$ 931,000 $ 269,000 $ 407,000 $ 255,000
192,000
215,000
Racing
Bikes
Total
Bikes
Sales
Variable manufacturing and selling expenses
Contribution margin
Fixed expenses:
466,000
465,000
116,000
158,000
97,000
153,000
Advertising, traceable
Depreciation of special equipment
Salaries of product-line managers
Allocated common fixed expenses
Total fixed expenses
69,900
43,400
115,500
186, 200
415,000
8,700
20,300
40,900
7, 200
38,700
81,400
168, 200
$ 50,000 $ 29,700 $ 46,800 $(26, 500)
20, 300
15,900
36, 300
51,000
123,500
40,500
53,800
123,300
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:
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.
Required 1
Required 2
Required 3
What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?
Financial (disadvantage) per quarter
S(100,000)|
< Requited 1
Required 2 >
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1
Transcribed Image Text:Complete this question by entering your answers in the tabs below.
Required 1
Required 2
Required 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.
Totals
Dirt Bikes
Mountain Bikes Racing Bikes
Contribution margin (loss)
Traceable fixed expenses:
Total traceable fixed expenses
Product line segment margin (loss)
0 $
0 $
Net operating income (loss)
< Required 2
Required 3 >
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01
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