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: Mountain Total Dirt Bikes Bikes Racing Bikes Sales $ 920,000 $ 262,000 $ 407,000 $ 251,000 Variable manufacturing and selling expenses 481,000 116,000 210,000 155,000 Contribution margin 439,000 146,000 197,000 96,000 Tixed expenses: Advertising, traceable 69,100 8,600 40,300 20,200 Depreciation of special equipment 44,400 20,700 7.900 15,800 Salaries of product-line managers 114,900 40,600 38,700 35,600 Allocated common fixed expenses 184,000 52,400 81,400 50,200 Total fixed expenses 412,400 122,300 168,300 121,800 Net operating income (10) $ 26,600 $ 23,700 $ 20,700 $ (25,800) "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 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 > Mountain Total Dirt Bikes Bikes Racing Bikes Sales $.920,000 $ 262,000 $ 407,000 $ 251,000 Variable manufacturing and selling expenses 481,000 116.000 210.000 155,000 Contribution margin 439,000 146,000 197,000 96,000 Fixed expenses Advertising, traceable 69,100 8,600 40,300 20,200 Depreciation of special equipment 44,400 20,700 7,900 15,800 Salaries of product-line managers 114,900 40,600 38,700 35,600 Allocated common fixed expenses. 184,000 52,400 81,400 50,200 Total fixed expenses 412,400 122,300 168,300 121,800 Net operating income (106) $ 26,600 $ 23,700 $ 28,700 $ (25,800) "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 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? OYes ON Total fixed expenses Net operating income (loss) 412,400 $ 26,600 122,300 $ 23,700 168,300 $ 28,700 121,800 $ (25,800) "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 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 Contribution margin (loss) Traceable fixed expenses Total traceable fixed expenses Product line segment margin (loss) Net operating income (loss)
