Exercise 11-2 (Algo) Dropping or Retaining a Segment (L011-2) 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 $ 924,000 468,000 456,000 Dirt Bikes $ 266,000 117.000 149,000 Mountain Bikes $ 401,000 195,000 206,000 Racing Bikes $ 257.000 156,000 101,000 Sales Variable manutacturing and selling expenses Contribution margin Fixed expensest Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses Total fixed expenses Net operating income (los) 69,500 44,200 116,400 13,000 416,900 41,100 8,200 20.900 40.800 53.200 123, 100 $ 25,900 40,300 7.700 38.900 B0,200 167.100 $ 38,900 21,000 15,600 36,700 51,400 124,700 $ (23,700) '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. Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses Total fixed expenses Net operating income (los) 69,500 44,200 116,400 184,800 414,900 $ 41,100 8,200 20,900 40,800 53,200 123, 100 $ 25,900 40,300 7,700 38,900 80,200 167, 100 $ 38,900 21,000 15,600 36,700 51,400 124,700 $ (23,700) "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. 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? Red Required 2 > eferences Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Should the production and sale of racing bikes be discontinued? 10Yes ONO Complete this question by entering your answers in the tabs below. Required Required 2 Required 3 OK 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 nt 0 0 0 0 rences Contribution margin (los) Traceable fixed expenses 0 0 0 O 0 os $ 05 Total traceable faced expenses Product line segment margin (s) $ 0 Net operating income (105) (Required 2 Hered
