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: Dirt Mountain Racing Total Bikes Bikes Bikes $ 915,000 $262.000 $ 403,000 $ 250, cea 471,800 115,000. 199, 157,000 444,000 147,000 204,000 93,000 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) 69,000 8,100 40,300 20.500 43,500 20.100 7,800 15,600 113.200 40,300 3 8,300 35, 100 183,00 52.400 80.600 58, woe 409,200 120,900 167,000 121,300 $ 34,800 $ 26,100 $ 37,800 $(28,300) "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 mole useful to management in assessing the long-run profitability of the various product lines. Seved Help Salaries of product-line managers Allocated common fixed expenses Total fixed expenses Net operating incone (loss) 113,700 40,309 183,680 52,400 409,200 120,900 $ 34,800 $ 26,100 38,300 35, 100 88,600 50,000 167,000 121,300 $ 37,000 $128,300) "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 property 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? Financial (disadvantage) per quarter Read > 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. Skipped Totals Dirt Bikes Mountain Bike Racing Bikes Door Contribution margin (loss) 0 0 0 0 Traceable foed expenses References Total traceable fixed expenses Product line segment margin (loss) Not operating income (loss) ( Required
