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. Data on sales and expenses for the past quarter follow: Dirt Mountain Racing Total Bikes Bikes Bikes $ 910,000 $263,000 $ 404,000 $ 251,000 476,000 117,000 202,000 157,000 442,000 146,000 202.000 94,000 Sales Variable manufacturing and selling expenses Contribution margin Pixed expenses Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses Total fixed expenses Net operating Incone (los) 69,300 8,400 40,700 20,200 43,600 20.800 7,400 15,400 115,900 40.800 38,300 36,800 183,600 52,600 80.800 50,200 412,400 122,600 162,200 122,600 $ 29,600 5 23,400 $ 34,000 $(28,600) "Allocated on the basis of sales dollars. Management is concerned about the continued losses shown by the racity 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 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-ru 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 > 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 lo 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? Ores ONO MacBook Air 80 900 ODD F4 F5 $ & 2 3. 4 5. 6 7 8 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 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 Bike Racing Bikes + Contribution margin (loss) Traceable foxed expenses Total traceable fixed expenses Product line segment margin (loss) Not operating income (10)
