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Hello! I'm having trouble with this practice problem. Any help is greatly appreciated. The Regal Cycle Company manufactures three types of bicyclesa dirt bike, a
Hello! I'm having trouble with this practice problem. Any help is greatly appreciated.
The Regal Cycle Company manufactures three types of bicyclesa 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 $ 917,000 $266,000 $ 401,000 $ 250,000 466,000 111,000 203,000 152,000 451,000 155,000 198,000 98,000 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) 69,400 43,900 114,800 183,400 411,500 $ 39,500 8,500 20,500 40,600 53,200 122,800 $ 32,200 $ 40,700 20, 200 7,900 15,500 39,000 35,200 80,200 50,000 167,800 120,900 30,200 $(22,900) *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 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes? Required 1 Required 2 Required 3 Should the production and sale of racing bikes be discontinued? Yes No 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 0 0 0 0 Contribution margin (loss) Traceable fixed expenses Total traceable fixed expenses 0 0 0 0 Product line segment margin (loss) 0 $ 0 $ 0 $ 0 Net operating income (loss) $ 0
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