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 Mountain. Racing Total Bikes Bikes Bikes $922,000 $265,000 $404,000 $ 253,000 474,000 114,000 200,000 160,000 448,000 151,000 204,000 93,000 68,700 43,500 8,200 20, 100 40,300 7,900 38,700 20,200 15,500 36,200 115,200 40,300 184,400 53,000 80,800 411,800 121,600 167,700 $ 36,200 $ 29,400 $ 36,300 $(29,500) 50,600 122,500 "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: 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 Mountain. Racing Total Bikes Bikes Bikes $922,000 $265,000 $404,000 $ 253,000 474,000 114,000 200,000 160,000 448,000 151,000 204,000 93,000 68,700 43,500 8,200 20, 100 40,300 7,900 38,700 20,200 15,500 36,200 115,200 40,300 184,400 53,000 80,800 411,800 121,600 167,700 $ 36,200 $ 29,400 $ 36,300 $(29,500) 50,600 122,500 "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
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