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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 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 expenses: 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 $ 930,000 466,000 Dirt Bikes $ 269,000 111,000 Mountain Bikes $ 406,000 203,000 Racing Bikes $ 255,000 152,000 464,000 158,000 203,000 103,000 69,700 8,800 40,300 20,600 43,200 20,500 7,200 15,500 114,400 40,700 38,500 35,200 186,000 53,800 81,200 51,000 413,300 123,800 167,200 122,300 $ 50,700 $ 34,200 $ 35,800 $ (19,300) 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 > Should the production and sale of racing bikes be discontinued? Yes No Required 1 Required 2 Required 3 Required 1 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. Contribution margin (loss) Traceable fixed expenses: Total traceable fixed expenses Product line segment margin (loss) Net operating income (loss) Totals Dirt Bikes Mountain Bikes Racing Bikes < Required 2 Required 3 >
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