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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
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 Required 1 Required 2 Required 3 Dirt Mountain Racing Total Bikes Bikes Bikes $931,000 $266,800 $ 406,800 $ 259,000 462,088 115,800 192,800 155,000 469,080 151,800 214,000 184,800 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 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) 69,200 8,700 40,200 20, 300 44,300 20,600 7,900 15,800 114,380 40,300 38,600 35,400 186,200 53,200 81,200 51,800 414,000 122,800 167,900 123,300 55,000 $ 28,200 $ 46,100 $(19,300) 0 0 0 0 Contribution margin (loss) Traceable fixed expenses "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 0 0 0 0 Total traceable fixed expenses Product line segment margin (loss) 0 0 $ 0 $ 0 $ 0 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 Net operating income (loss) $ 0
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