Exercise 13-2 (Algo) Dropping or Retaining a Segment (L013-2) 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 Bike Dirt Bikes Racing Bikes Sales $.929.000 $ 263,000 $ 407,000 $ 259,000 Variable manufacturing and selling expenses 463,000 111,000 299,000 153,000 Contribution margin 466,000 152,000 208,000 106.000 Fixed expenses Advertising, traceable 69,700 6.100 40,600 21,000 Depreciation of special equipment 43,500 20.500 74100 15,900 salaries of product-line managers 110,000 40.800 38,000 35,200 Allocated common fixed expenses 205.000 52.600 B1400 51.800 Total fixed expenses 413.000 122,000 167,100 123,900 Het operating income (104) 53.000 $ 30,000 5.40.500 (17.900) "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. 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? Tequired 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 ONO 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 Contribution margin (105) Traceable foxed expenses Total traceable fixed expenses Product line segment margin (0) Net operating income (oss)
