Question
Can anyone help me with the error in red? The Regal Cycle Company manufactures three types of bicyclesa dirt bike, a mountain bike, and a
Can anyone help me with the error in red?
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 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.*Allocated on the basis of sales dollars.
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.
Totals | Dirt Bikes | Mountain Bikes | Racing Bikes | |
Sales | $931,000 | $267,000 | $409,000 | $255,000 |
Variable manufacturing and selling expenses | 480,000 | 119,000 | 204,000 | 157,000 |
Contribution margin (loss) | 451,000 | 148,000 | 205,000 | 98,000 |
Traceable fixed expenses: | ||||
Advertising, traceable | 69,600 | 8,400 | 40,800 | 20,400 |
Depreciation of special equipment | 44,600 | 20,800 | 8,000 | 15,800 |
Salaries of the product line managers | 114,300 | 40,700 | 38,500 | 35,100 |
Total traceable fixed expenses | 228,500 | 69900 | 87300 | 71,300 |
Product line segment margin (loss) | 222,500 | 78,100 | 117,700 | 26,700 |
Common fixed expenses | 44,600 | |||
Net operating income (loss) | 177,900 |
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