Question
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 $ 920,000 $ 266,000 $ 401,000 $ 253,000 Variable manufacturing and selling expenses 471,000 111,000 207,000 153,000 Contribution margin 449,000 155,000 194,000 100,000 Fixed expenses: Advertising, traceable 69,500 8,700 40,200 20,600 Depreciation of special equipment 43,700 20,600 7,700 15,400 Salaries of product-line managers 113,700 40,000 38,600 35,100 Allocated common fixed expenses* 184,000 53,200 80,200 50,600 Total fixed expenses 410,900 122,500 166,700 121,700 Net operating income (loss) $ 38,100 $ 32,500 $ 27,300 $ (21,700) *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 wear out. Required: 1a. What is the impact on net operating income by discontinuing racing bikes? (Decreases should be indicated by a minus sign.)
1b. | Should production and sale of the racing bikes be discontinued? |
2a. | Prepare a segmented income statement. |
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