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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 quartet follow. Dirt Mountain Racing Total Bikes Bikes Sales 3.923,000 $265.000 $ 405,00 5 253,000 Variable manufacturing and selling expenses 455.000 112,000 190, 353.000 Contribution margin 450.000 150.000 215.000 100.000 Fixed expenses Advertising, traceable 69,400 8,300 40,200 Depreciation of special equipment 20,900 43,100 20,400 7,800 15,100 Salaries of product line managers 114,000 40,600 Allocated common fixed expenses 38,300 35,100 53,000 31.000 Total fixed expenses 411100 123300 167.300 121,700 Net operating income (los) $ 56,700 $30,700 47.700 5021,700) "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 weat 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 > Should the production and sale of racing bikes be discontinued? OYes No 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)
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