The Regal Cycle Company manufactures three types of bicycles: a dirt bike, a mountain bike, and a racing bike.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. **Sales and Expense Report**This table presents a breakdown of sales, variable expenses, fixed expenses, and net operating income for three types of bikes: Dirt Bikes, Mountain Bikes, and Racing Bikes. The figures are divided into several categories with a total column for all products.### Sales and Expenses:- **Sales**: - Total: $924,000 - Dirt Bikes: $266,000 - Mountain Bikes: $408,000 - Racing Bikes: $250,000- **Variable Manufacturing and Selling Expenses**: - Total: $475,000 - Dirt Bikes: $112,000 - Mountain Bikes: $210,000 - Racing Bikes: $153,000- **Contribution Margin**: - Total: $449,000 - Dirt Bikes: $154,000 - Mountain Bikes: $198,000 - Racing Bikes: $97,000### Fixed Expenses:- **Advertising, Traceable**: - Total: $69,000 - Dirt Bikes: $8,200 - Mountain Bikes: $40,400 - Racing Bikes: $20,400- **Depreciation of Special Equipment**: - Total: $43,200 - Dirt Bikes: $20,300 - Mountain Bikes: $7,200 - Racing Bikes: $15,700- **Salaries of Product-Line Managers**: - Total: $115,800 - Dirt Bikes: $40,800 - Mountain Bikes: $38,100 - Racing Bikes: $36,900- **Allocated Common Fixed Expenses**: - Total: $184,800 - Dirt Bikes: $53,200 - Mountain Bikes: $81,600 - Racing Bikes: $50,000- **Total Fixed Expenses**: - Total: $412,800 - Dirt Bikes: $122,500 - Mountain Bikes: $167,300 - Racing Bikes: $123,000### Net Operating Income (Loss):- **Total**: $36,200- **Dirt Bikes**: $31,500- **Mountain Bikes**: $30,700- **Racing Bikes**: ($26,000) ### Financial Analysis Template for Bike Product Lines**Overview**This table illustrates a financial breakdown of three different bike product lines: Dirt Bikes, Mountain Bikes, and Racing Bikes. The categories included in the analysis are Sales, Variable Manufacturing and Selling Expenses, Contribution Margin, Traceable Fixed Expenses, Product Line Segment Margin, Common Fixed Expenses, and Net Operating Income.**Table Breakdown:**1. **Sales**: - Records the total sales revenue for each bike category. 2. **Variable Manufacturing and Selling Expenses**: - Represents the costs that change depending on the production volume.3. **Contribution Margin (Loss)**: - Calculated as Sales minus Variable Expenses. This figure shows the amount contributing to fixed expenses and profit.4. **Traceable Fixed Expenses**: - **Advertising, traceable**: Expenses directly related to promoting each product line. - **Depreciation of special equipment**: Costs associated with the reduction in value of equipment specific to each product line. - **Salaries of the product line managers**: Fixed salaries for managers dedicated to a specific bike category.5. **Total Traceable Fixed Expenses**: - The sum of all traceable fixed costs.6. **Product Line Segment Margin (Loss)**: - Calculated as Contribution Margin minus Total Traceable Fixed Expenses. Represents the segment's profitability before common fixed expenses.7. **Common Fixed Expenses**: - Costs shared across all product lines.8. **Net Operating Income (Loss)**: - The final profit or loss after subtracting common fixed expenses from the product line segment margin.Each bike category delineates zeros across all financial metrics, indicating this template is prepared for data input and does not currently display actual financial figures.

Income statement: Under this Statement showing the company’s performance over a period of time by…

Answered: Totals Dirt Bikes Mountain Bikes Racing…

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q