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 $ 931,000 $ 264,000 $ 407,000 $ 260,000
Variable manufacturing and selling expenses 477,000 113,000 208,000 156,000
Contribution margin 454,000 151,000 199,000 104,000
Fixed expenses:
Advertising, traceable 69,400 8,600 40,300 20,500
Depreciation of special equipment 43,100 20,200 7,400 15,500
Salaries of product-line managers 115,700 40,400 38,700 36,600
Allocated common fixed expenses* 186,200 52,800 81,400 52,000
Total fixed expenses 414,400 122,000 167,800 124,600
Net operating income (loss) $ 39,600 $ 29,000 $ 31,200 $ (20,600)

*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.

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

Students also viewed these Accounting questions

Question

6. How do writers in this chapter use the concept of emergence?

Answered: 1 week ago

Question

Let{X(t), Answered: 1 week ago

Answered: 1 week ago