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 $263,000 $ 407,000 $ 254,000 474,000 113,000 205,000 156,000 450,000 150,000 202,000 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) 69,800 8,600 40,500 20,700 43,000 20,400 7,200 15,400 115,200 40,700 38,000 36,500 184,800 52,600 81,400 50,800 412,800 122,300 167,100 123,400 $ 37,200 $ 27,700 $ 34,900 $(25,400) "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? 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? H 13 Exercises & Problems Saved expenses for the past quarter follow: Dirt Mountain Racing Total Bikes Bikes Bikes $924,000 $263,000 $ 407,000 $ 254,000 474,000 113,000 205,000 156,000 450,000 150,000 202,000 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) 69,800 8,600 40,500 20,700 43,000 20,400 7,200 15,400 115,200 40,700 38,000 36,500 184,800 52,600 81,400 50,800 412,800 122,300 167,100 123,400 $ 37,200 $ 27,700 $ 34,900 $(25,400) "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? Yes ONO 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 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)
