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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:
Dirt Mountain Racing Bikes Total Bikes Bikes Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: $ 926,000 $264,000 $ 409,000 $ 253,000 472,000 117,000 199,000 156,000 454,000 147,000 219,000 97.80 40,700 7,300 38,900 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* 20,900 15,300 35,700 50,600 168,700122,566 $ 40,400 24,600 $ 41,300 $(25,500) 70,000 43,400 20,800 8,400 115,000 40,400 185,200 52,800 413,600 122,400 81,8000 Total fixed expenses Net operating income (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 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 0 Total traceable fixed expenses Product line segment margin (loss) Net operating income (loss)Step by Step Solution
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