The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a...

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: Advertising, traceable. Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses Total fixed expenses. Net operating income (loss) Dirt Mountain Racing Total Bikes Bikes Bikes $924,000 $262,000 $403,000 $259,000 471,000 117,000 204,000 150,000 453,000 145,000 199,000 109,000 69,900 20,800 43,800 20,700 115,800 40,300 15,700 38,700 36,800 51,800 184,800 52,400 80,600 414,300 122,000 167,200 125, 100 $ 38,700 $ 23,000 $ 31,800 $(16,100) 8,600 40,500 7,400 "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. 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: Advertising, traceable. Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses Total fixed expenses. Net operating income (loss) Dirt Mountain Racing Total Bikes Bikes Bikes $924,000 $262,000 $403,000 $259,000 471,000 117,000 204,000 150,000 453,000 145,000 199,000 109,000 69,900 20,800 43,800 20,700 115,800 40,300 15,700 38,700 36,800 51,800 184,800 52,400 80,600 414,300 122,000 167,200 125, 100 $ 38,700 $ 23,000 $ 31,800 $(16,100) 8,600 40,500 7,400 "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.

Answer rating: 100% (QA)

1 2 3 Financial Disadvantage Note 1 Loss of Contribution margin by dropping Racing Bikes ... View the full answer