Exercise 13-2 (Algo) Dropping or Retaining a Segment [LO13-2] 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) "Allocated on the basis of sales dollars. Total $ 922,000 468,000 454,000 Dirt Bikes $265,000 116,000 149,000 Mountain Bikes $ 407,000 200,000 Racing Bikes $ 250,000 152,000 207,000 98,000 69,500 8,400 40,200 20,900 44,100 21,000 7,500 15,600 116,400 40,600 39,000 36,800 184,400 53,000 81,400 50,000 414,400 123,000 168,100 123,300 $ 39.600 $ 26,000 $ 38,900 $ (25,300) 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 13-2 (Algo) Dropping or Retaining a Segment [LO13-2] 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) "Allocated on the basis of sales dollars. Total $ 922,000 Mountain Dirt Bikes Bikes $265,000 $ 407,000 Racing Bikes $250,000 468,000 116,000 200,000 152,000 454,000 149,000 207,000 98,000 69,500 8,400 40,200 20,900 44,100 21,000 7,500 15,600 116,400 40,600 39,000 36,800 184,400 53,000 81,400 50,000 414,400 123,000 168,100 123,300 $ 39,600 $ 26,000 $ 38,900 $ (25,300) 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 Should the production and sale of racing bikes be discontinued? Yes ONO 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) "Allocated on the basis of sales dollars. Total Dirt Bikes Bikes $ 922,000 $ 265,000 $ 407,000 468,000 116,000 200,000 $ 250,000 152,000 454,000 149,000 207,000 98,000 69,500 8,400 40,200 20,900 44,100 21,000 7,500 15,600 116,400 40,600 39,000 36,800 184,400 53,000 81,400 50,000 414,400 123,000 168,100 123,300 $ 39,600 $ 26,000 $ 38,900 $ (25,300) 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. Contribution margin (loss) Traceable fixed expenses: Total traceable fixed expenses Product line segment margin (loss) Totals Dirt Bikes Mountain Bikes Racing Bikes Net operating income (loss) < Required 2 Required 3>