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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?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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?
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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