Exercise 13-2 (Algo) Dropping or Retaining a Segment (LO13-2] The Regal Cyce 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 Mountain Racing Total Bikes Bike Bikes 5927,000 $266,000 $410,000 $ 251,000 466,000 117.000 191,000 158,000 461,000 149,000 219,000 93,000 Sales Variable manufacturing and selling expenses Contribution margin Tixed expenses Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses Total fixed expenses Net operating income (loan) 69.400 8,300 40,500 20,600 43,000 20,200 7.400 15.400 115,600 40,100 38.900 36,600 185,400 53,200 82,000 50200 413,400 121,800 168.800 122.000 3.47.600 $ 27,200 3 30,200 5(29,500) "Allocated on the basis of sales dollars. Management is concemed 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 What is the financial advantage (disadvantage) per quarter of discontinuing the Racind Bikes? $927,000 $266,000 $410,000 $ 251,000 466,000 117,000 191,000 158,000 461,000 149,000 219,000 93,000 Sales Variable manufacturing and selling expensen Contribution margin Tixed expenses Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses Total fixed expenses Het operating income (10) 69,400 8,300 40,500 20.600 43,000 20,200 7,400 15,400 115,600 40,100 38,900 36,600 185,400 53,200 82,000 50,200 413,400 121,800 168,800 122,800 $ 47,600 $ 27,200 $ 50,200 $(29,800) "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 o 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. 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 Required 3 > "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 Bike Racing Bikes Contribution margin (1058) Traceable fixed expenses + Total traceable fixed expenses Product line segment margin (loss) Not operating Income (los)
