Exercise 6-2 (Algo) Dropping or Retaining a Segment (L06-2) 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 Mountain Racing Total Bikes Bikes Bikes $924,000 $264,800 $ 406,600 $ 254,080 457,800 113,089 190,000 154,000 467,800 151,eee 216,888 100,000 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) 70,209 44,600 8,700 20,888 40,800 7,800 39,000 20,700 16,000 114,900 40,800 35,100 184,890 52,800 414,500 123,100 $ 52,500 $ 27,900 $ 81,200 50,800 168,880 122,600 47,200 $(22,600) "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: what is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? 2 Should the production and sale of racing bikes be discontinued? Prepare a property 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? Required 2 > Complete this question by entering your answers in the tabs below. Required 2 Required 1 Required 2 Required 3 Should the production and sale of racing bikes be discontinued? OYes ONO 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) 0 $ 0 Net operating income (loss)
