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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: Dirt Mountain Racing Total Bikes Bikes Bikes Sales $ 924, eee $264,00 $ 400,000 $ 260,000 Variable manufacturing and selling expenses - 456,000 111,000 192,000 153,000 Contribution margin 468,000 153,eee 208, 107,00 Fixed expenses: Advertising, traceable 69,900 8,400 41,000 20,500 Depreciation of special equipment 43,180 20,700 7,300 15,100 Salaries of product-line managers 115,100 46,980 38,000 36,200 Allocated common fixed expenses 184,880 52,800 80,000 52,000 Total fixed expenses 412,900 122,800 166,300 123,800 Net operating income (loss) $ 55,100 $ 30,200 $ 41,700 $(16,808) *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. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes? Financial (disadvantage) per quarter Required 1 Required 2 > Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 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: 1 0 0 0 | Total traceable fixed expenses Product line segment margin (loss) 0 $ 0 $ 0 $ 0 Net operating income (loss) $ 0
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