The Regal Cycle Company manufactures three types of bicyclesa dirt bike, a mountain bike, and a...
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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 Mountain Racing Total Bikes Bikes Bikes $934,000 $269,000 $ 407,000 $ 258,000 Sales Variable manufacturing and selling 477,000 118,000 200,000 159,000 expenses Contribution margin Fixed expenses: 457,000 151,000 207,000 99,000 Advertising, traceable 70,500 8,900 40,900 20,700 43,800 20,800 7,900 15,100 115,400 40,900 38,400 36,100 Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* Total fixed expenses 186,800 81,400 51,600 53,800 416,500 124,400 168,600 123,500 Net operating income (loss) $ 40,500 $ 26,600 $ 38,400 $(24,500) *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 Mountain Racing Total Bikes Bikes Bikes $934,000 $269,000 $ 407,000 $ 258,000 Sales Variable manufacturing and selling 477,000 118,000 200,000 159,000 expenses Contribution margin Fixed expenses: 457,000 151,000 207,000 99,000 Advertising, traceable 70,500 8,900 40,900 20,700 43,800 20,800 7,900 15,100 115,400 40,900 38,400 36,100 Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* Total fixed expenses 186,800 81,400 51,600 53,800 416,500 124,400 168,600 123,500 Net operating income (loss) $ 40,500 $ 26,600 $ 38,400 $(24,500) *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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1 2 3 Financial Disadvantage Note 1 Loss of Contribution margin by dropping Racing Bikes ... View the full answer
Related Book For
Managerial Accounting
ISBN: 978-0697789938
13th Edition
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer
Posted Date:
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