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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 Mountain Racing Total Bikes Bikes Bikes $ 930,000 $262,200 $ 409, eee $ 259, eee 468,000 120, see 193, see 155,000 462,000 142,000 216,000 184,000 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) 69,900 8,600 43, Bee 20,800 115,600 40,800 186, see 52,400 415, 300 122,600 46,700 $ 19,480 $ 40,700 20,600 7,800 15, 200 38,600 36,200 81,800 51,800 168,900 123, see 47,100 $(19,890) $ *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 3 Should the production and sale of racing bikes be discontinued? Yes No Required 1 Required 2 Required 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 Sales 0 0 Variable manufacturing and selling expenses Contribution margin (loss) Traceable fixed expenses Depreciation of special equipment Salaries of the product line managers Common fixed expenses Total traceable fixed expenses 0 0 0 0 Product line segment margin (loss) 0 S 0 S 0 S 0 Common fixed expenses Net operating income (loss) $ 0
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