Exercise $11-2($Algo$)$ Dropping or Retaining a Segment $[$LO$11-2]$

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 $ $924,000$ $ $263,000$ $ $408,000$ $ $253,000$

Variable manufacturing and selling expenses $469,000111,000203,000155,000$

Contribution margin $455,000152,000205,00098,000$

Fixed expenses:

Advertising, traceable $69,9008,30040,80020,800$

Depreciation of special equipment $43,80020,7007,50015,600$

Salaries of product$-$line managers $115,30040,40038,30036,600$

Allocated common fixed expenses$*184,80052,60081,60050,600$

Total fixed expenses $413,800122,000168,200123,600$

Net operating income $($loss$)$ $ $41,200$ $ $30,000$ $ $36,800$ $ $(25,600)$

$*$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: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:

$*$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:

What is the financial advantage $($disadvantage$)$ per quarter of discontinuing the Racing Bikes?

Should the production and sale of racing bikes be discontinued?

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 $3$

What is the financial advantage $($disadvantage$)$ per quarter of discontinuing the Racing Bikes?

Financial advantage $($disadvantage$)$ per quarter

Financial advantage per quarter

Required $1$

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.

$1.$ 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.