Exercise 11-2 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. Dato on sales and expenses for the past quarter follow Variable manufacturing and selling expenses Contribution margin Fixed expenses Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated connon fixed expenses Total fixed expenses Net operating income (loss) Dirt Mountain Racing Total Bikes Bikes Bikes 5 926,000 $267,000 $402,000 5 257,000 483,000 118,080 208,000 157.000 443,000 149.000 194,000 100,000 69,500 8,400 40,700 20,400 43,200 20,600 7,200 15,400 115,700 40,800 38,800 36,100 185,200 53,400 80,400 51,400 413,600 123,200 167160 1233.00 $ 29,400 $ 25,800 $ 26,900 $123,300) "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. "Allocated on the basis of sales dollars. Management is concerned about the continued losses shown by the racing bikes and wants a recommen the line should be discontinued. The special equipment used to produce racing bikes has no resale value 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 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? > Required Required 2 Income (loss) 200 167, 109 123,300 $ 29,400 $ 25,800 $ 26,900 $(23,300) "Allocated on the basis of sales dollars. Management is concerned about the continued losses shown by the racing bikes and wants a recommendatic the line should be discontinued. The special equipment used to produce racing bikes has no resale value and 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 a profitability of the various product lines. 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? Yes No ure prouuluol di Sole or talin Vikers we uiSLUTTUU 3. Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long- profitability of the various product lines. Complete this question by entering your answers in the tabs below. 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. Totals Dirt Bikes Mountain Bikes Racing Bikes Contribution margin (loss) Traceable fixed expenses: Total traceable fixed expenses Product line segment margin (loss) Net operating Income (loss)
