Exercise 11-2 (Algo) Dropping or Retaining a Segment [LO11-2] 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: 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. Total $ 921,000 472,000 Dirt Bikes $267,000 Mountain Bikes $ 402,000 116,000 449,000 151,000 201,000 201,000 Racing Bikes $ 252,000 155,000 97,000 69,400 8,600 40,200 20,600 42,700 20,200 7,100 15,400 115,600 40,600 38,100 36,900 184,200 53,400 411,900 122,800 80,400 165,800 50,400 123,300 $ 37,100 $ 28,200 $ 35,200 $ (26,300) 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. Exercise 11-5 (Algo) Volume Trade-Off Decisions [LO11-5] Outdoor Luggage, Incorporated, makes high-end hard-sided luggage for sports equipment. Data concerning three of the company's most popular models appear below. Selling price per unit Variable cost per unit Ski Guard $ 250 $ 80 Golf Guard $340 $ 140 Fishing Guard $ 265 $ 115 Plastic injection molding machine processing time required to produce one unit 5 minutes Pounds of plastic pellets per unit 6 pounds 6 minutes 15 pounds 3 minutes 6 pounds Required: 1. If we assume that the total time available on the plastic injection molding machine is the constraint in the production process, how much contribution margin per minute of the constrained resource is earned by each product? 2. Which product offers the most profitable use of the plastic injection molding machine? 3. If we assume that a severe shortage of plastic pellets has required the company to cut back its production so much that its new constraint has become the total available pounds of plastic pellets, how much contribution margin per pound of the constrained resource is earned by each product? 4. Which product offers the most profitable use of the plastic pellets? 5. Which product has the largest contribution margin per unit