Question
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 $ 933,000 465,000 468,000 Diet Bikes $270,000 118,000 152,000 Mountain Bikes $ 407,000 194,000 213,000 Racing Bikes $256,000 153,000 103,000 69,500 8,300 40,000 20,400 44,300 20,600 7,700 16,000 116,200 40,700 38,000 36,700 186,600 54,000 81,400 51,200 416,600 123,600 168,700 124,300 $51,400 $ 28,400 $44,300 $2,300) Management is concerned about the continued losses shown by the racing bikes end 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 weer 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.
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