a. 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:

	Total			Dirt Bikes			Mountain Bikes			Racing Bikes
Sales	$	917,000		$	263,000		$	403,000		$	251,000
Variable manufacturing and selling expenses		478,000			112,000			206,000			160,000
Contribution margin		439,000			151,000			197,000			91,000
Fixed expenses:
Advertising, traceable		70,400			8,900			40,600			20,900
Depreciation of special equipment		44,200			20,700			7,800			15,700
Salaries of product-line managers		114,900			40,900			38,300			35,700
Allocated common fixed expenses*		183,400			52,600			80,600			50,200
Total fixed expenses		412,900			123,100			167,300			122,500
Net operating income (loss)	$	26,100		$	27,900		$	29,700		$	(31,500)

*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.

b.

Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly contribution format income statement for the bilge pump product line follows:

Thalassines Kataskeves, S.A. Income StatementBilge Pump For the Quarter Ended March 31
Sales				$	450,000
Variable expenses:
Variable manufacturing expenses	$	138,000
Sales commissions		40,000
Shipping		13,000
Total variable expenses					191,000
Contribution margin					259,000
Fixed expenses:
Advertising (for the bilge pump product line)		21,000
Depreciation of equipment (no resale value)		109,000
General factory overhead		31,000	*
Salary of product-line manager		118,000
Insurance on inventories		10,000
Purchasing department		44,000
Total fixed expenses					333,000
Net operating loss				$	(74,000	)

*Common costs allocated on the basis of machine-hours.

Common costs allocated on the basis of sales dollars.

Discontinuing the bilge pump product line would not affect sales of other product lines and would have no effect on the companys total general factory overhead or total Purchasing Department expenses.

Required:

What is the financial advantage (disadvantage) of discontinuing the bilge pump product line?

c.

Imperial Jewelers manufactures and sells a gold bracelet for $407.00. The companys accounting system says that the unit product cost for this bracelet is $266.00 as shown below:

Direct materials	$	147
Direct labor		82
Manufacturing overhead		37
Unit product cost	$	266

The members of a wedding party have approached Imperial Jewelers about buying 21 of these gold bracelets for the discounted price of $367.00 each. The members of the wedding party would like special filigree applied to the bracelets that would require Imperial Jewelers to buy a special tool for $467 and that would increase the direct materials cost per bracelet by $8. The special tool would have no other use once the special order is completed.

To analyze this special order opportunity, Imperial Jewelers has determined that most of its manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $9.00 of the overhead is variable with respect to the number of bracelets produced. The company also believes that accepting this order would have no effect on its ability to produce and sell jewelry to other customers. Furthermore, the company could fulfill the wedding partys order using its existing manufacturing capacity.

Required:

1. What is the financial advantage (disadvantage) of accepting the special order from the wedding party?

2. Should the company accept the special order?

Thank you!