Answered step by step
Verified Expert Solution
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: Dirt Mountain Racing Total Bikes Bikes Bikes $ 933,000 $267,000 $ 406,000 $ 260,000 474,000 114,000 203,000 157,000 459,000 153,000 203,000 103,000 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) 69,400 8,300 40,100 21,000 43,300 20,300 7,100 15,900 115,300 40,500 38,300 36,500 186,600 53,400 81,200 52,000 414,600 122,500 166,700 125,400 $ 44,400 $ 30,500 $ 36,300 $(22,400) *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. Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? 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 0 0 Variable manufacturing and selling expenses Contribution margin (loss) Traceable fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of the product line managers Total traceable fixed expenses Product line segment margin (loss) 0 0 0 0 O 0 $ 0 $ Common fixed expenses Net operating income (loss) $ 0
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started