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 $ 927,000 $ 262,000 $ 407,000 $ 258,000 Variable manufacturing and selling expenses 473,000 113,000 207,000 153,000 Contribution margin 454,000 149,000 200,000 105,000 Fixed expenses: Advertising, traceable 69,700 8,700 40,700 20,300 Depreciation of special equipment 43,400 20,500 7,100 15,800 Salaries of product-line managers 115,800 40,900 38,900 36,000 Allocated common fixed expenses* 185,400 52,400 81,400 51,600 Total fixed expenses 414,300 122,500 168,100 123,700 Net operating income (loss) $ 39,700 $ 26,500 $ 31,900 $ (18,700)
*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:
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.
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. What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? 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. Should the production and sale of racing bikes be discontinued? Complete this question by entering your answers in the tabs below. Prepare a properly formatted segmented income statement that would be more useful to management in assessing profitability of the various product lines
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 | $ 927,000 | $ 262,000 | $ 407,000 | $ 258,000 |
Variable manufacturing and selling expenses | 473,000 | 113,000 | 207,000 | 153,000 |
Contribution margin | 454,000 | 149,000 | 200,000 | 105,000 |
Fixed expenses: | ||||
Advertising, traceable | 69,700 | 8,700 | 40,700 | 20,300 |
Depreciation of special equipment | 43,400 | 20,500 | 7,100 | 15,800 |
Salaries of product-line managers | 115,800 | 40,900 | 38,900 | 36,000 |
Allocated common fixed expenses* | 185,400 | 52,400 | 81,400 | 51,600 |
Total fixed expenses | 414,300 | 122,500 | 168,100 | 123,700 |
Net operating income (loss) | $ 39,700 | $ 26,500 | $ 31,900 | $ (18,700) |
*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:
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.
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