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 Bikes Racing Bikes Dirt Bikes $ 264,000 117,000 147,000 Total $ 925,000 466,000 459,000 $ 403,000 191,000 212,000 $ 258,000 158,000 100,000 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 40,700 7,200 38,800 80,600 20,600 15,200 8,700 70,000 42,900 20,500 40,500 52,800 122,500 $ 24,500 35,500 51,600 122,900 114,800 185,000 412,700 |167,300 $ 46,300 $ 44,700 $ (22,900) 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. 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 Bikes Racing Bikes Dirt Bikes $ 264,000 117,000 147,000 Total $ 925,000 466,000 459,000 $ 403,000 191,000 212,000 $ 258,000 158,000 100,000 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 40,700 7,200 38,800 80,600 20,600 15,200 8,700 70,000 42,900 20,500 40,500 52,800 122,500 $ 24,500 35,500 51,600 122,900 114,800 185,000 412,700 |167,300 $ 46,300 $ 44,700 $ (22,900) 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. 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.
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter2: Financial Statements, Cash Flow,and Taxes
Section: Chapter Questions
Problem 20SP: Begin with the partial model in the file Ch02 P20 Build a Model.xlsx on the textbook’s Web...
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