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 $ 300,000 120,000 180,000 30,000 23,000 35,000 60,000 148,000 $ 32,000 Dirt Bikes $90,000 27,000 63,000 10,000 6,000 Mountain Bikes $ 150,000 60,000 90,000 14,000 9,000 13,000 30,000 66,000 $ 17,000 $ 24,000 12,000 18,000 46,000 Racing Bikes $ 60,000 33,000 27,000 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? 6,000 8,000 10,000 12,000 36,000 $ (9,000) Management is considering discontinuing the racing bikes. The special equipment used to produce racing bikes has no resale value and does not wear out.
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 $ 300,000 120,000 180,000 30,000 23,000 35,000 60,000 148,000 $ 32,000 Dirt Bikes $90,000 27,000 63,000 10,000 6,000 Mountain Bikes $ 150,000 60,000 90,000 14,000 9,000 13,000 30,000 66,000 $ 17,000 $ 24,000 12,000 18,000 46,000 Racing Bikes $ 60,000 33,000 27,000 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? 6,000 8,000 10,000 12,000 36,000 $ (9,000) Management is considering discontinuing the racing bikes. The special equipment used to produce racing bikes has no resale value and does not wear out.
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
Net operating income (loss)
*Allocated on the basis of sales dollars.
Total
$ 300,000
120,000
180,000
30,000
23,000
35,000
60,000
148,000
$ 32,000
Dirt Bikes
$ 90,000
27,000
63,000
10,000
6,000
12,000
18,000
46,000
$ 17,000
Management is considering discontinuing the racing bikes. The special equipment
and does not wear out.
Mountain
Bikes
$ 150,000
60,000
90,000
Racing Bikes
$ 60,000
33,000
27,000
14,000
6,000
9,000
8,000
13,000
10,000
30,000
12,000
66,000
36,000
$ 24,000 $ (9,000)
to produce racing bikes has no resale value
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?
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