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 Bikes Mountain Bikes Racing Bikes Sales $ 932,000 $ 266,000 $ 408,000 $ 258,000 Variable manufacturing and selling expenses 477,000 116,000 202,000 159,000 Contribution margin 455,000 150,000 206,000 99,000 Fixed expenses: Advertising, traceable 70,400 8,800 40,700 20,900 Depreciation of special equipment 43,400 20,600 7,600 15,200 Salaries of product-line managers 116,000 40,900 38,200 36,900 Allocated common fixed expenses* 186,400 53,200 81,600 51,600 Total fixed expenses 416,200 123,500 168,100 124,600 Net operating income (loss) $ 38,800 $ 26,500 $ 37,900 $ (25,600) *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.
PREPARE A SEGMENTED INCOME STATEMENT
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