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Item6

Item 6 1.7 points

Exercise 12-2 Dropping or Retaining a Segment [LO12-2]

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	$	923,000		$	265,000		$	408,000		$	250,000
Variable manufacturing and selling expenses		464,000			110,000			204,000			150,000
Contribution margin		459,000			155,000			204,000			100,000
Fixed expenses:
Advertising, traceable		69,700			8,800			40,300			20,600
Depreciation of special equipment		44,300			20,500			7,800			16,000
Salaries of product-line managers		115,900			40,400			38,900			36,600
Allocated common fixed expenses*		184,600			53,000			81,600			50,000
Total fixed expenses		414,500			122,700			168,600			123,200
Net operating income (loss)	$	44,500		$	32,300		$	35,400		$	(23,200)

*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.

CAN YOU EXPLAIN HOW TO FIND COMMON FIXED EXPENSES IN DETAIL PLEASE?

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. Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? $ 67,700 Financial (disadvantage) per quarter Required 2 Required 1 6 of 6 Next> Prev 6 X w P ... Required 1 Required 2 Required 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. Mountain Racing Bikes Totals Dirt Bikes Bikes 265,000 $ Sales 923,000 $ 673,000 408,000 Variable manufacturing and selling expenses 204,000 314,000 110,000 464,000 Contribution margin (loss) 204,000 359,000 459,000 155,000 Traceable fixed expenses: Advertising, traceable 8,800 69,700 40,300 28,300 Depreciation of special equipment 79,300 44,300 20,500 7,800 40,400 134,600 Salaries of the product line managers 115,900 38,900 Total traceable fixed expenses 229,900 69,700 87,000 242,200 $ Product line segment margin (loss) $ $ 85,300 117,000 116,800 229,100 Common fixed expenses 18,500 Net operating income (loss) $ 210,600 Required 3> Required 2 t on 6 w P