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: Total Dirt Bikes Mountain Bikes Racing Bikes Sales $ 925,000 $ 265,000 $ 402,000 $ 258,000 Variable manufacturing and selling expenses 466,000 111,000 195,000 160,000 Contribution margin 459,000 154,000 207,000 98,000 Fixed expenses: Advertising, traceable 69,000 8,200 40,500 20,300 Depreciation of special equipment 43,200 20,100 7,700 15,400 Salaries of product-line managers 114,400 40,400 38,900 35,100 Allocated common fixed expenses* 185,000 53,000 80,400 51,600 Total fixed expenses 411,600 121,700 167,500 122,400 Net operating income (loss) $ 47,400 $ 32,300 $ 39,500 $ (24,400) *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 ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

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:

	Total	Dirt Bikes	Mountain Bikes	Racing Bikes
Sales	$ 925,000	$ 265,000	$ 402,000	$ 258,000
Variable manufacturing and selling expenses	466,000	111,000	195,000	160,000
Contribution margin	459,000	154,000	207,000	98,000
Fixed expenses:
Advertising, traceable	69,000	8,200	40,500	20,300
Depreciation of special equipment	43,200	20,100	7,700	15,400
Salaries of product-line managers	114,400	40,400	38,900	35,100
Allocated common fixed expenses*	185,000	53,000	80,400	51,600
Total fixed expenses	411,600	121,700	167,500	122,400
Net operating income (loss)	$ 47,400	$ 32,300	$ 39,500	$ (24,400)

*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.

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.
Complete this question by entering your answers in the tabs below.
Required 1 Required 2 Required 3
What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?
Financial advantage (disadvantage) per quarter
Financial advantage per quarter
Required 2 >

Required 1 Required 2 Required 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.
Contribution margin (loss)
Traceable fixed expenses:
Total traceable fixed expenses
Product line segment margin (loss)
Net operating income (loss)
$
Totals
0
0
0
0
Dirt Bikes Mountain Bikes
$
0
0
0
$
0
0
0
Racing Bikes
$
0
0
0

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