Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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 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:
Total Dirt Bikes Mountain Bikes Racing Bikes
Sales $ 300,000 $ 90,000 $ 150,000 $ 60,000
Variable manufacturing and selling expenses 120,00027,00060,00033,000
Contribution margin 180,00063,00090,00027,000
Fixed expenses:
Advertising, traceable 30,00010,00014,0006,000
Depreciation of special equipment 23,0006,0009,0008,000
Salaries of product-line managers 35,00012,00013,00010,000
Allocated common fixed expenses*60,00018,00030,00012,000
Total fixed expenses 148,00046,00066,00036,000
Net operating income (loss) $ 32,000 $ 17,000 $ 24,000 $ (9,000)
*Allocated on the basis of sales dollars.
Management is considering discontinuing the racing bikes. 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?
Should the production and sale of racing bikes be discontinued?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Management And Cost Accounting

Authors: Colin Drury

9th Edition

1408093936, 978-1408093931

More Books

Students also viewed these Accounting questions