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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 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
$
$
$
$
Variable manufacturing and selling expenses
Contribution margin
Fixed expenses:
Advertising, traceable
Depreciation of special equipment
Salaries of productline managers
Allocated common fixed expenses
Total fixed expenses
Net operating income loss
$
$
$
$
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:
What is the financial advantage disadvantage per quarter of discontinuing the Racing Bikes?
Should the production and sale of racing bikes be discontinued?
Prepare a properly formatted segmented income statement that would be more useful to management in assessing the longrun profitability of the various product lines.
Financial advantage disadvantage per quarter
Total
Dirt Bikes
Mountain Bikes
Racing Bikes
Contribution Margin Loss
Traceable Fixed Expenses:
Traceable Fixed Expenses
Product Line Segment Margin Loss
Net Operating Income Loss Bikes Mountain Bikes Racing Bikes Sales $ $ $ $ Variable manufacturing and selling expenses
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