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 $ 265,000 $ 407,000 $ 259,000
Variable manufacturing and selling expenses 467,000 120,000 193,000 154,000
Contribution margin 464,000 145,000 214,000 105,000
Fixed expenses:
Advertising, traceable 69,200 8,200 40,400 20,600
Depreciation of special equipment 43,600 20,300 7,700 15,600
Salaries of product-line managers 115,100 40,500 38,400 36,200
Allocated common fixed expenses* 186,200 53,000 81,400 51,800
Total fixed expenses 414,100 122,000 167,900 124,200
Net operating income (loss) $ 49,900 $ 23,000 $ 46,100 $ (19,200)
*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?
Yes
No

2a. Prepare a segmented income statement.

2b.

Would a segmented income statement format be more usable to management in assessing the long-run profitability of the various product lines.

Yes
No

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

Recommended Textbook for

Auditor Going Concern Reporting A Review Of Global Research And Future Research Opportunities

Authors: Marshall A. Geiger, Anna Gold, Philip Wallage

1st Edition

0367649489, 978-0367649487

More Books

Students also viewed these Accounting questions