Exercise 11-2 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. irt Mountain Racing Total Bikes Bikes Bikes Sales $933,000 $267,000 $ 407,000 $ 259,000 Variable manufacturing and selling 467,000 117,000 193,000 157.000 expenses Contribution margin 466,000 150,000 214,000 102,000 Fixed expenses Advertising, traceable 69,900 8,500 40.900 20,500 Depreciation of special equipment 44,100 20,400 7.900 15,800 Salaries of product-line managers 115,000 40,900 38,000 36,100 Allocated common fixed expenses 186,600 53.400 1.400 51.800 Total fixed expenses 415,600 123,200 168,200 124, 200 Net operating income (loss) $ 50,400 $ 26,800 $ 45,800 $(22,200) "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. Complete this question by entering your the tabs below. Required 1 Required 2 Required 3 What is the financial advantage (disadvan discontinuing the racing bikes? Required 2 > Dirt Mountain Racing Total Bikes Bikes Bikes $ 933,000 $267.000 $ 407,000 $ 259,000 467,000 117,000 193,000 157,000 466,000 150,000 214,000 102,000 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) 69,900 8,500 40,900 20,500 44,100 20,400 7,900 15,800 115,000 40.900 38,000 36,100 186,600 53,400 81,400 51,800 415,600 123,200 168,200 124,200 $ 50,400 $ 26,800 $ 45,00 $(22,200) "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 o the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear ou 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 property 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. Totale Dirt Bikes Mountain Bike Racing Bikes Sales 0 0 0 0 Contribution margin (los) Traceable fixed expenses: Total traceable foxed expenses Product line segment margin (loss) 0 0 0 0 $ $ Net operating income oss) $
