Question
The Regal Cycle Company manufactures three types of bicyclesa dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the
The Regal Cycle Company manufactures three types of bicyclesa dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow:
Total Dirt Mountain Racing
Sales $925,000$267,000$407,000$251,000
Variable manufacturing and selling expenses 468,000116,000 200,000152,000
Contribution margin 457,000151,000 207,00099,000
Fixed expenses:
Advertising, traceable 69,300 8,700 40,300 20,300
Depreciation of special equipment 44,000 20,800 8,000 15,200
Salaries of product-line managers 14,100 40,100 38,600 35,400
Allocated common fixed expenses* 185,00053,400 81,400 50,200
Total fixed expenses 412,400123,000 168,300121,100
Net operating income (loss) $44,600$28,000$38,700 $(22,100)
*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.
The Regal Cycle Company manufactures three types of bicyclesa dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow:
Total Dirt Mountain Racing
Sales $925,000$267,000$407,000$251,000
Variable manufacturing and selling expenses 468,000116,000 200,000152,000
Contribution margin 457,000151,000 207,00099,000
Fixed expenses:
Advertising, traceable 69,300 8,700 40,300 20,300
Depreciation of special equipment 44,000 20,800 8,000 15,200
Salaries of product-line managers 114,100 40,100 38,600 35,400
Allocated common fixed expenses* 185,00053,400 81,400 50,200
Total fixed expenses 412,400123,000 168,300121,100
Net operating income (loss) $44,600$28,000$38,700 $(22,100)
*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.
Totals Dirt Mountain Racing
Sales $925,000 $267,000 $407,000 $251,000
Variable manufacturing and selling expenses 468,000 116,000 200,000 152,000
Contribution margin (loss) 457,000 151,000 207,000 99,000
Traceable fixed expenses:
Advertising 69,300 8,700 40,300 20,300
Depreciation of special equipment 44,000 20,800 8,000 15,200
Salaries of the product line managers 114,100 40,100 38,600 35,400
Total traceable fixed expenses 227,400 69,600 86,900 70,900
Product line segment margin (loss) 229,600 $81,400 $120,100 $28,100
Common fixed expenses 185,000
Net operating income (loss) $44,600
Required:
1. What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes?
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