Exercise 12-2 Dropping or Retaining a Segment [LO12-2] The Regal Cycle Company manufactures three types of bicyclesa dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow: Dirt Bikes $268,000 115,000 153,000 Mountain Bikes $ 409,000 195,000 214,000 Racing Bikes $ 255,000 154,000 101, 000 Total Sales $ 932,000 Variable manufacturing and selling expenses 464,000 Contribution margin 468,000 Fixed expenses: Advertising, traceable 69, 200 Depreciation of special equipment 44,200 Salaries of product-line managers 115,500 Allocated common fixed expenses* 186, 400 Total fixed expenses 415, 300 Net operating income (loss) $ 52, 700 8,400 20, 300 40, 100 53, 600 122, 400 $ 30,600 40, 600 8,000 38,500 81,800 168,900 45, 100 20, 200 15, 900 36, 900 51,000 124,000 $(23,000) $ *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 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Required 1 Required 2 > Exercise 12-2 Dropping or Retaining a Segment [LO12-2] 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 Bikes $268,000 115,000 153,000 Mountain Bikes $ 409,000 195,000 214,000 Racing Bikes $ 255,000 154,000 101,000 Total Sales $ 932,000 Variable manufacturing and selling expenses 464,000 Contribution margin 468,000 Fixed expenses Advertising, traceable 69,200 Depreciation of special equipment 44,200 Salaries of product-line managers 115,500 Allocated common fixed expenses* 186, 400 Total fixed expenses 415, 300 Net operating income (loss) $ 52, 700 8, 400 20, 300 40, 100 53, 600 122, 400 $ 30, 600 40, 600 8,000 38,500 81,800 168,900 $ 45, 100 20, 200 15,900 36, 900 51,000 124,000 $(23, 000) *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 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 Contribution margin (loss) Traceable fixed expenses: 0 Total traceable fixed expenses Product line segment margin (loss) 0 0 $ 0 0 $ 0 $ 0 Net operating income (loss) 0
