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 $ 926,000 Dirt Bikes 459,000 467,000 $ 267,000 111,000 156,000 Mountain Bikes $ 403,000 193,000 210,000 Racing Bikes $ 256,000 155,000 101,000 69,600 8,600 40,700 20,300 43,700 20,600 7,600 15,500 114,100 40,100 38,300 35,700 185,200 53,400 80,600 51,200 412,600 122,700 167,200 122,700 $ 54,400 $ 33,300 $ 42,800 $ (21,700) Management is considering discontinuing the racing bikes. 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?
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 $ 926,000 Dirt Bikes 459,000 467,000 $ 267,000 111,000 156,000 Mountain Bikes $ 403,000 193,000 210,000 Racing Bikes $ 256,000 155,000 101,000 69,600 8,600 40,700 20,300 43,700 20,600 7,600 15,500 114,100 40,100 38,300 35,700 185,200 53,400 80,600 51,200 412,600 122,700 167,200 122,700 $ 54,400 $ 33,300 $ 42,800 $ (21,700) Management is considering discontinuing the racing bikes. 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?
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
$ 926,000
Dirt Bikes
459,000
$ 267,000
111,000
Mountain
Bikes
$ 403,000
193,000
Racing Bikes
$ 256,000
155,000
467,000
156,000
210,000
101,000
69,600
8,600
40,700
20,300
43,700
20,600
7,600
15,500
114,100
40,100
38,300
35,700
185,200
53,400
80,600
51,200
412,600
122,700
167,200
122,700
$ 54,400
$ 33,300 $ 42,800
$ (21,700)
Management is considering discontinuing the racing bikes. 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?
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