Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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 $ 924,000 $ 266,000 $ 401,000 $ 257,000
Variable manufacturing and selling expenses 465,000 112,000 196,000 157,000
Contribution margin 459,000 154,000 205,000 100,000
Fixed expenses:
Advertising, traceable 69,400 8,400 40,800 20,200
Depreciation of special equipment 44,100 20,400 7,900 15,800
Salaries of product-line managers 114,600 40,700 38,200 35,700
Allocated common fixed expenses* 184,800 53,200 80,200 51,400
Total fixed expenses 412,900 122,700 167,100 123,100
Net operating income (loss) $ 46,100 $ 31,300 $ 37,900 $ (23,100)

*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.

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? Y or N

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.

Totals Dirt Bikes Mountain Bikes Racing Bikes
Contribution margin (loss)
Traceable fixed expenses:
Total traceable fixed expenses
Product line segment margin (loss)
Net operating income (loss)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Alpine Cupcakes Audit Case With Data Analytics

Authors: Carol Callaway Dee, Mary P.Mindak

2nd Edition

1618533231, 978-1618533234

More Books

Students also viewed these Accounting questions