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: Total Dirt Bikes Mountain Bikes Racing Bikes 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) $ 920,000 $262,000 $ 402,000 $ 256,000 445,000 147,000 475,000 115,000 203,000 157,000 199,000 99,000 69,800 8,500 40,300 21,000 42,600 20,300 7,200 15,100 114,600 40,100 38,900 35,600 184,000 52,400 80,400 51,200 411,000 121,300 166,800 122,900 $ 34,000 $ 25,700 $ 32,200 $(23,900) *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.
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: Total Dirt Bikes Mountain Bikes Racing Bikes 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) $ 920,000 $262,000 $ 402,000 $ 256,000 445,000 147,000 475,000 115,000 203,000 157,000 199,000 99,000 69,800 8,500 40,300 21,000 42,600 20,300 7,200 15,100 114,600 40,100 38,900 35,600 184,000 52,400 80,400 51,200 411,000 121,300 166,800 122,900 $ 34,000 $ 25,700 $ 32,200 $(23,900) *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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Vikrambhai
Transcribed Image Text:Chec
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)
Dirt
Total
Mountain
Bikes
Bikes
$ 920,000 $262,000 $ 402,000 $ 256,000
475,000 115,000 203,000 157,000
445,000 147,000
Racing
Bikes
199,000
99,000
69,800
8,500
40,300
21,000
42,600 20,300
7,200
15,100
114,600
40,100
38,900
35,600
184,000
52,400
80,400
51,200
411,000 121,300
166,800
122,900
$ 34,000 $ 25,700 $ 32,200 $(23,900)
*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.
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