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: Total $ 924,000 477,000 447,000 70,400 43,900 114,800 184,800 Dirt Bikes $ 263,000 117,000 146,000 413,900 $ 33,100- Mountain Bikes 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. 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. 9,000 20,900 40,300 52,600 122,800 $ 23,200 $ 402,000 202,000 200,000 Racing Bikes $ 259,000 158,000 101,000 40,500 7,600 20,900 15,400 36,200 51,800 124,300 $ 33,200 $ (23,300) 38,300 80,400 166,800 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: Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: Total $ 924,000 477,000 447,000 70,400 43,900 114,800 184,800 Dirt Bikes $ 263,000 117,000 146,000 413,900 $ 33,100- Mountain Bikes 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. 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. 9,000 20,900 40,300 52,600 122,800 $ 23,200 $ 402,000 202,000 200,000 Racing Bikes $ 259,000 158,000 101,000 40,500 7,600 20,900 15,400 36,200 51,800 124,300 $ 33,200 $ (23,300) 38,300 80,400 166,800 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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Subject :- Account
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:
Total
$ 924,000
477,000
447,000
70,400
43,900
Dirt Bikes:
$ 263,000
117,000
146,000
114,800
184,800
413,900
$ 33,100
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.
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.
9,000
20,900
Mountain
Bikes
$ 402,000
202,000
200,000
40,300
52,600
122,800
$ 23,200
Racing Bikes
$ 259,000
158,000
101,000
40,500
7,600
38,300
80,400
166,800
$ 33,200
20,900
15,400
36,200
51,800
124,300
$ (23,300)
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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