Exercise 6-2 (Algo) Dropping or Retaining a Segment [LO6-2] 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 $ 921,000 473,000 448,000 Dirt Bikes $ 269,000 115,000 154,000 Mountain Bikes $ 402,000 208,000 194,000 Racing Bikes $ 250,000 150,000 100,000 69,300 8,600 40,200 20,500 43,400 20,300 7,300 15,800 115,300 40,100 39,000 36,200 184,200 53,800 80,400 50,000 412,200 122,800 166,900 122,500 $ 35,800 $ 31,200 $ 27,100 $ (22,500) 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.
Exercise 6-2 (Algo) Dropping or Retaining a Segment [LO6-2] 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 $ 921,000 473,000 448,000 Dirt Bikes $ 269,000 115,000 154,000 Mountain Bikes $ 402,000 208,000 194,000 Racing Bikes $ 250,000 150,000 100,000 69,300 8,600 40,200 20,500 43,400 20,300 7,300 15,800 115,300 40,100 39,000 36,200 184,200 53,800 80,400 50,000 412,200 122,800 166,900 122,500 $ 35,800 $ 31,200 $ 27,100 $ (22,500) 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![Exercise 6-2 (Algo) Dropping or Retaining a Segment [LO6-2]
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
$ 921,000
Dirt Bikes
473,000
448,000
$ 269,000
115,000
154,000
Mountain
Bikes
$ 402,000
208,000
194,000
Racing Bikes
$ 250,000
150,000
100,000
69,300
8,600
40,200
20,500
43,400
20,300
7,300
15,800
115,300
40,100
39,000
36,200
184,200
53,800
80,400
50,000
412,200
122,800
166,900
122,500
$ 35,800
$ 31,200
$ 27,100 $ (22,500)
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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F79d80dcc-4de0-44af-9538-6730390a601d%2F3f97183b-2375-4516-89ee-507bc7d1dcc8%2F7361kbi_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Exercise 6-2 (Algo) Dropping or Retaining a Segment [LO6-2]
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
$ 921,000
Dirt Bikes
473,000
448,000
$ 269,000
115,000
154,000
Mountain
Bikes
$ 402,000
208,000
194,000
Racing Bikes
$ 250,000
150,000
100,000
69,300
8,600
40,200
20,500
43,400
20,300
7,300
15,800
115,300
40,100
39,000
36,200
184,200
53,800
80,400
50,000
412,200
122,800
166,900
122,500
$ 35,800
$ 31,200
$ 27,100 $ (22,500)
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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