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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: Sales Variable manufacturing and selling expenses Contribution margin Fixed expensest Advertising, traceable, Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses Total fixed expenses Net operating income (loss) "Allocated on the basis of sales dollars. Total $ 923,000 468,000 Dirt Bikes 455,000 $ 262,000 115,000 147,000 Mountain Bikes $ 404,000 Racing Bikes $ 257,000 195,000 158,000 209,000 99,000 69,600 8,300 40,600 20,700 44,500 20,500 8,000 16,000 115,100 41,000 38,400 35,700 184,600 52,400 413,800 122,200 80,800 167,800 51,400 123,800 $ 41,200 $ 24,800 $ 41,200 $ (24,800) 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. Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Financial advantage (disadvantage) per quarter $ (42,600) Required 2 > 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. Sales Variable manufacturing and selling expenses Contribution margin (loss) Traceable fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of the product line managers Total traceable fixed expenses Product line segment margin (loss) Common fixed expenses Net operating income (loss) Totals Dirt Bikes Mountain Bikes Racing Bikes 0 0 0 0 0 0 0 0 0 $ 0 $ 0 $ 0 $
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