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: 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) Dirt Mountain Racing Total Bikes Bikes Bikes $918,000 $264,000 $ 401,000 $ 253,000 485,000 119,000 207,000 159,000 433,000 145,000 194,000 94,000 69,900 8,500 40,600 20,800 42,900 20,300 7,500 15,100 116,000 40,400 38,700 36,900 183,600 52,800 80,200 50.600 412,400 122,000 167,000 123, 400 $ 20,600 $ 23,000 $ 27,000 $(29,400) "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 answers in the tabs below. Required 1 Required 2 Required 3 485,000 433,000 119,000 145,000 207,000 194,000 159,000 94,000 Valiu manuLLu Lug anu LLU 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 (1088) 69,900 8,500 40,600 20,800 42,900 20,300 7,500 15, 100 116,000 40,400 38,700 36,900 183,600 52,800 80,200 50,600 412,400 122,000 167,000 123,400 $ 20,600 $ 23,000 $ 27,000 $(29,400) "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 the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear 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 profitability of the various product lines. nces 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? 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 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 0 0 0 0 Contribution margin (loss) Traceable fixed expenses 0 0 0 Total traceable fixed expenses Product line segment margin (loss) 0 0 $ $ 0 $ 0 Net operating income (1) $ 0
