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 Total $ 300,000 120,000 180,000 Dirt Bikes 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 $ 90,000 27,000 63,000 Bikes $ 150,000 60,000 Racing Bikes $ 60,000 33,000 27,000 90,000 30,000 23,000 35,000 60,000 148,000 10,000 6,000 12,000 18,000 14,000 9,000 13,000 30,000 66,000 6,000 8,000 10,০০০ 12,000 36,000 $ (9,000) Net operating income (loss) "Allocated on the basis of sales dollars. 46,000 $ 17,000 $ 32,000 $ 24,000 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 Total $ 300,000 120,000 180,000 Dirt Bikes 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 $ 90,000 27,000 63,000 Bikes $ 150,000 60,000 Racing Bikes $ 60,000 33,000 27,000 90,000 30,000 23,000 35,000 60,000 148,000 10,000 6,000 12,000 18,000 14,000 9,000 13,000 30,000 66,000 6,000 8,000 10,০০০ 12,000 36,000 $ (9,000) Net operating income (loss) "Allocated on the basis of sales dollars. 46,000 $ 17,000 $ 32,000 $ 24,000 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
Total
$ 300,000
120,000
180,000
Dirt Bikes
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
$ 90,000
27,000
63,000
Bikes
$ 150,000
60,000
90,000
Racing Bikes
$ 60,000
33,000
27,000
30,000
23,000
35,000
60,000
148,000
$ 32,000
10,000
6,000
12,000
18,000
46,000
14,000
9,000
13,000
30,000
66,000
6,000
৪, 000
10,000
12,000
36,000
Net operating income (1oss)
$ 17,000
$ 24,000
$ (9,000)
"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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