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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 Dirt Bikes Mountain Racing Bikes Total Bikes $ 922,000 $261,000 $ 402,000 $ 259,000 471,000 119,000 197,000 155,000 451,000 142,000 205,000 104,000 Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: 69,200 43,700 20,900 114,400 40,000 184,400 52,200 20,500 15,300 36,300 51,800 411,700 121,400 166,400 123,900 $ 39,300 20,600 $ 38,600 $(19,900) 40,400 7,500 38,100 80,400 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses 8,300 Total fixed expenses Net operating income (loss) 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 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Required 1 Required 2 Required 1Required 2 Required 3 Should the production and sale of racing bikes be discontinued? Yes ONO Required 3 Required 1 Required 1 Required 2 Required3 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) Required 2 Required 3
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