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 $ 262,000 115,000 147,000 Mountain Bikes $ 402,000 200,000 Racing Bikes $ 257,000 158,000 202,000 99,000 69,000 8,100 40,800 20,100 44,600 20,800 7,900 15,900 115,900 40,600 38,700 36,600 184,200 52,400 80,400 51,400 413,700 121,900 167,800 124,000 $ 34,300 $ 25,100 $ 34,200 $ (25,000) 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: 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 $ 262,000 115,000 147,000 Mountain Bikes $ 402,000 200,000 Racing Bikes $ 257,000 158,000 202,000 99,000 69,000 8,100 40,800 20,100 44,600 20,800 7,900 15,900 115,900 40,600 38,700 36,600 184,200 52,400 80,400 51,400 413,700 121,900 167,800 124,000 $ 34,300 $ 25,100 $ 34,200 $ (25,000) 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.
Chapter5: Process Costing
Section: Chapter Questions
Problem 3PA: Pant Risers manufactures bands for self-dressing assistive devices for mobility-impaired...
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Transcribed Image Text: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
$ 262,000
115,000
147,000
Mountain
Bikes
$ 402,000
200,000
Racing Bikes
$ 257,000
158,000
202,000
99,000
69,000
8,100
40,800
20,100
44,600
20,800
7,900
15,900
115,900
40,600
38,700
36,600
184,200
52,400
80,400
51,400
413,700
121,900
167,800
124,000
$ 34,300
$ 25,100
$ 34,200 $ (25,000)
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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