Exercise 11-2 (Static) 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, Mountain Total Dirt Bikes Bikes Racing Bikes Sales $ 300,000 $ 90,000 $ 150,000 $ 60,000 Variable manufacturing and selling expenses 120,000 27,000 60,000 33,000 Contribution margin 180,000 63,000 90,000 27,000 Fixed expenses: Advertising, traceable 30,000 10,000 14,000 6,000 Depreciation of special equipment 23,000 6,000 Salaries of product-Line managers 9,000 8,000 35,000 12,600 13,000 10,000 Allocated common fixed expenses 60,000 18,000 30,000 12,000 Total fixed expenses 140,000 46,000 66,000 36,000 Net operating income (loss) $ 32,000 $ 17,000 $ 24,000 $ 19,000) "Allocated on the basis of soles 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 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 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? 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 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 Should the production and sale of racing bikes be discontinued? Yes No 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! Required 2 Required 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. Totals Dirt Bikes Mountain Bike Racing Bikes 0 0 0 0 Sales Variable manufacturing and selling expenses Contribution margin (loss) Traceable foed expenses Depreciation of special equipment Salaries of the product line managers Common foxed expenses Total traceable foxed expenses Product line segment margin (loss) Common food expenses Net operating income (los) 0 0 0 0 0 0 $ 0 $ 0 $ 0
