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: Dirt Bikes Mountain Bikes $ 933,000 $267,000 $ 407,000 $ 259,000 190,000 Racing Bikes Total 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 455,000 478,000 113,000 152,000 154,000 217,000 107,000 69,800 43,000 114,100 186,600 413,500 40,500 7,200 8,700 20,600 40,100 53,400 20,600 15, 200 35,500 51,800 38,500 81,400 122,800 167,600 123,100 Net operating income (loss) $64,500 $ 31,200 $ 49,400 $(16,100) *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: Dirt Bikes Mountain Bikes $ 933,000 $267,000 $ 407,000 $ 259,000 190,000 Racing Bikes Total 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 455,000 478,000 113,000 152,000 154,000 217,000 107,000 69,800 43,000 114,100 186,600 413,500 40,500 7,200 8,700 20,600 40,100 53,400 20,600 15, 200 35,500 51,800 38,500 81,400 122,800 167,600 123,100 Net operating income (loss) $64,500 $ 31,200 $ 49,400 $(16,100) *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.
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:
Dirt
Bikes
Mountain
Bikes
$ 933,000 $267,000 $ 407,000 $ 259,000
190,000
Racing
Bikes
Total
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
455,000
478,000
113,000
152,000
154,000
217,000
107,000
69,800
43,000
114,100
186,600
413,500
40,500
7,200
8,700
20,600
40,100
53,400
20,600
15, 200
35,500
51,800
38,500
81,400
122,800
167,600
123,100
Net operating income (loss)
$64,500 $ 31,200 $ 49,400 $(16,100)
*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.
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