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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 $ 926,000 $268,000 $ 403,000 $ 255,000 472,000 115,000 198,000 159,000 454,000 153,000 205,000 96,000 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) 70,000 8,700 40,600 43,600 20,400 7,800 113,800 40,200 38,400 185,200 53,60080, 600 412,600 122,900 167,400 $ 41,400 $ 30,100 $ 37,600 20,700 15,400 35,200 51,000 122,300 $(26,300) *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? Required 1 Required 2 Required 3 .......... Should the production and sale of racing bikes be discontinued? Yes ONO Required 1 Required 3 > 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 L L Contribution margin (loss) Traceable fixed expenses: L L Total traceable fixed expenses Product line segment margin (loss) Net operating income (loss) Required 2 Required 3 >
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