Question
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 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: Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* Total fixed expenses Net operating income (loss) *Allocated on the basis of sales dollars. Total Dirt Bikes $ 929,000 468,000 461,000 $ 261,000 110,000 151,000 Mountain Bikes $ 408,000 Racing Bikes $ 260,000 207,000 151,000 201,000 109,000 70,400 8,900 40,700 20,800 43,900 20,700 7,400 15,800 114,700 40,700 38,400 35,600 185,800 52,200 81,600 52,000 414,800 122,500 168,100 124,200 $ 46,200 $ 28,500 $ 32,900 $ (15,200) Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or no 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 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?
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