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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 Racing Bikes Dirt Mountain Total $923,000 $ 267,000 464,000 Bikes Bikes $ 405,000 $ 251,000 194,000 Sales Variable manufacturing and selling expenses 120,000 150,000 Contribution margin 147,000 101,000 211,000 459,000 Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses 40,900 7,500 39,000 81,000 69,900 44,200 116,200 184,600 20,300 15,900 36,700 50,200 8,700 20,800 40,500 53.400 Total fixed expenses 123,400 414.900 168,400 123,100 $ 42,600 (22,100) $ 44,100 $ 23,600 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: la What is the impact on net operating income by discontinuing racing bikes? (Decreases should be indicated by a minus sign.) Difference: Net Total If Racing Operating Income Increase or Current Total Bikes Are Dropped (Decrease) Contribution margin (loss) 0 0 Fixed expenses: Total fixed expenses 0 0 0$ 0$ Net operating income (loss) 0 1b. Should production and sale of the racing bikes be discontinued? OYes ONo 2a. Prepare a segmented income statement. Dirt Bikes Racing Bikes Totals Mountain Bikes Sales Variable manufacturing and selling expenses Contribution margin (loss) 0 0 Traceable fixed expenses: Advertising Depreciation of special equipment Salaries of the product line managers Total traceable fixed expenses 0 0 0 Product line segment margin 0$ $ 0 Common fixed expenses Net operating income (loss) $ 2b. Would a segmented income statement format be more usable to management in assessing the long- run profitability of the various product lines Yes O No
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