The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a...
Fantastic news! We've Found the answer you've been seeking!
Question:
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) *Allocated on the basis of sales dollars. Dirt Bikes Mountain Racing Bikes Bikes Total $ 300,000 $90,000 $150,000 $ 60,000 120,000 27,000 33,000 180,000 63,000 27,000 30,000 10,000 23,000 6,000 35,000 12,000 60,000 18,000 148,000 46,000 60,000 90,000 14,000 9,000 13,000 30,000 66,000 $ 32,000 $17,000 $ 24,000 $ (9,000) 6,000 8,000 10,000 12,000 36,000 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 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes? Required 1 Required 2 Required 3 Should the production and sale of racing bikes be discontinued? Yes No Required 1 Required 2 Required 3 Prepare a properly formatted segmented income statement that would be more useful to management in assessi 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 Racing Bikes 0 0 $ 0 0 0 Troy Engines, Ltd., manufactures a variety of engines for use in heavy equipment. The company has always produced all of the necessary parts for its engines, including all of the carburetors. An outside supplier has offered to sell one type of carburetor to Troy Engines, Ltd., for a cost of $35 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost 15,000 Units Per per Year Unit $ 14 $ 210,000 10 150,000 3 45,000 6* 90,000 9 135,000 $ 42 $630,000 *One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value). Required: 1. Assuming the company has no alternative use for the facilities that are now being used to produce the carburetors, what would be the financial advantage (disadvantage) of buying 15,000 carburetors from the outside supplier? 2. Should the outside supplier's offer be accepted? 3. Suppose that if the carburetors were purchased, Troy Engines, Ltd., could use the freed capacity to launch a new product. The segment margin of the new product would be $150,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 15,000 carburetors from the outside supplier? 4. Given the new assumption requirement 3, should the outside supplier's offer be accepted? Assuming the company has no alternative use for the facilities that are now being used to produce the carburetors, what would be the financial advantage (disadvantage) of buying 15,000 carburetors from the outside supplier? Should the outside supplier's offer be accepted? Yes No Suppose that if the carburetors were purchased, Troy Engines, Ltd., could use the freed capacity to launch a new product. The segment margin of the new product would be $150,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 15,000 carburetors from the outside supplier? Suppose that if the carburetors were purchased, Troy Engines, Ltd., could use the freed capacity to launch a new product. The segment margin of the new product would be $150,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 15,000 carburetors from the outside supplier? Given the new assumption in requirement 3, should the outside supplier's offer be accepted? Yes No 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) *Allocated on the basis of sales dollars. Dirt Bikes Mountain Racing Bikes Bikes Total $ 300,000 $90,000 $150,000 $ 60,000 120,000 27,000 33,000 180,000 63,000 27,000 30,000 10,000 23,000 6,000 35,000 12,000 60,000 18,000 148,000 46,000 60,000 90,000 14,000 9,000 13,000 30,000 66,000 $ 32,000 $17,000 $ 24,000 $ (9,000) 6,000 8,000 10,000 12,000 36,000 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 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes? Required 1 Required 2 Required 3 Should the production and sale of racing bikes be discontinued? Yes No Required 1 Required 2 Required 3 Prepare a properly formatted segmented income statement that would be more useful to management in assessi 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 Racing Bikes 0 0 $ 0 0 0 Troy Engines, Ltd., manufactures a variety of engines for use in heavy equipment. The company has always produced all of the necessary parts for its engines, including all of the carburetors. An outside supplier has offered to sell one type of carburetor to Troy Engines, Ltd., for a cost of $35 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost 15,000 Units Per per Year Unit $ 14 $ 210,000 10 150,000 3 45,000 6* 90,000 9 135,000 $ 42 $630,000 *One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value). Required: 1. Assuming the company has no alternative use for the facilities that are now being used to produce the carburetors, what would be the financial advantage (disadvantage) of buying 15,000 carburetors from the outside supplier? 2. Should the outside supplier's offer be accepted? 3. Suppose that if the carburetors were purchased, Troy Engines, Ltd., could use the freed capacity to launch a new product. The segment margin of the new product would be $150,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 15,000 carburetors from the outside supplier? 4. Given the new assumption requirement 3, should the outside supplier's offer be accepted? Assuming the company has no alternative use for the facilities that are now being used to produce the carburetors, what would be the financial advantage (disadvantage) of buying 15,000 carburetors from the outside supplier? Should the outside supplier's offer be accepted? Yes No Suppose that if the carburetors were purchased, Troy Engines, Ltd., could use the freed capacity to launch a new product. The segment margin of the new product would be $150,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 15,000 carburetors from the outside supplier? Suppose that if the carburetors were purchased, Troy Engines, Ltd., could use the freed capacity to launch a new product. The segment margin of the new product would be $150,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 15,000 carburetors from the outside supplier? Given the new assumption in requirement 3, should the outside supplier's offer be accepted? Yes No
Expert Answer:
Answer rating: 100% (QA)
1 2 3 Financial Disadvantage Note 1 Loss of Contribution margin by dropping Racing Bike... 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:
Students also viewed these accounting questions
-
The Regal Cycle Company manufactures three types of bicyclesa dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow: Management is concerned about the...
-
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: Management is concerned about the...
-
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: Management is concerned about the...
-
Using the trial balance prepared for Binbutti Engineering in Part 4 of Problem 2-9A, prepare an income statement and statement of changes in equity for the three months ended July 31, 2014, and a...
-
According to the PCAOB, during the audit of internal controls for an issuer, the ultimate objective of testing the design effectiveness of internal controls is to a. Determine whether the companys...
-
In Exercises evaluate the expression without using a calculator. log a 1/a
-
What is a Developmental Configuration, when and how does it evolve, and who is accountable for its establishment and maintenance?
-
Consider again the scenario described in Problem 4. a. The Center for Business Analytics is considering a refund policy for no-shows. No refund would be given for members who do not attend, but...
-
The water system in a suburban area consists of an old 200-mm pipeline 760 m long which conveys water from a pump to a reservoir whose water surface is 107 m higher than the pump. Water is pumped at...
-
As the manager of Margarita Mexican Restaurant, you must deal with a variety of business transactions. Provide an explanation for the following transactions: a. Debit Equipment and credit Cash. b....
-
Coronado is contemplating a capital investment of $20000. The cash flows over the project's five year life are projected as follows: Expected Annual Expected Annual Year Cash Inflows Cash Outflows 1...
-
A uniform meter stick is supported by a knife edge at the 50-cm mark. Neglect the mass of the meter stick. Mass A (4 kg) is hanging at 30-cm mark and mass B (6 kg) is hanging 80-cm. Where a third...
-
Gravitational force is the main cause of high and low tides on Earth. The diagram shows the location of two 1-kg masses of water on Earth at A and B. What is the correct expression for calculating...
-
We start with some review problems A crate of mass 2 2 . 6 kg rests on a level surface, with a coefficient of kinetic friction 0 . 2 9 2 . You push on the crate with an applied force of 3 8 4 N ....
-
A baseball has a mass of 0 . 1 5 kg and radius 3 . 7 cm . In a baseball game, a pitcher throws the ball with a substantial spin so that it moves with an angular speed of 3 6 rad / s and a linear...
-
A small block slides down a frictionless track whose shape is described by y = ( x ^ 2 ) / d for x < 0 and by y = - ( x ^ 2 ) / d for x > 0 . The value of d is 2 . 8 8 m , and x and y are...
-
For the firm described below, what is the firms 2010 total cash flow and the firms 2010 cash flow to shareholders? Consider the following information regarding ABC Corporation. Sales ($ millions)...
-
Consider a closed, rigid tank with a volume of 0.8L, filled with cold water initially at 27C. The tank is filled such that there are no voids (air pockets) within. The initial pressure within the...
-
This makes no sense at all, said Bill Sharp, president of Essex Company. We sold the same number of units this year as we did last year, yet our profits have more than doubled. Who made the goofthe...
-
Tom Emory and Jim Morris strolled back to their plant from the administrative offices of Ferguson & Son Manufacturing Company. Tom is manager of the machine shop in the companys factory; Jim is...
-
Realm, Inc., has developed a new fantasy board game. The company sold 15,000 games last year at a selling price of $20 per game. Fixed costs associated with the game total $182,000 per year, and...
-
The total amount of time required to complete a schedule is called what?
-
A major advantage of using SPT is the minimization of average flowtime. What is a disadvantage of the use of SPT?
-
What priority sequencing rule is usually used to order customers standing in a line?
Study smarter with the SolutionInn App