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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 Sales $922,000 $266,000 $405,000 $ 251,000 Variable manufacturing and 458,000 113,000 195,000 150,000 selling expenses Contribution margin 464,000 153,000 210,000 101,000 Fixed expenses: Advertising, traceable 70,100 8,800 40,700 20,600 Depreciation of 43,800 20,500 7,500 15,800 special equipment Salaries of product-line 116,800 41,000 39,000 36,800 managers Allocated common 184,400 53,200 81,000 50,200 fixed expenses* Total fixed expenses 415,100 123,500 168, 200 123, 400 Net operating income $ 48,900 $ 29,500 $ 41,800 $(22,400) (loss) *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 Required Required 2 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 Mountain Dirt Bikes Racing Bikes Bikes Advertising, traceable Common fixed expenses Contribution margin (loss) 0 ol ol 0 Traceable fixed expenses: Depreciation of special equipment Salaries of the product line managers Depreciation of special equipment Total traceable fixed expenses 0 0 0 0 Product line segment margin (loss) o $ 0 $ 0 $ 0 Salaries of the product line managers Net operating income (loss) $ 0
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