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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 $ 932,000 468,000 $ 269,000 464,000 118,000 151,000 Mountain Bikes $ 407,000 196,000 Racing Bikes $ 256,000 154,000 211,000 102,000 69,400 8,800 40,200 20,400 44,100 20,500 7,900 15,700 114,100 40,200 38,500 35,400 186,400 53,800 81,400 51,200 414,000 123,300 168,000 122,700 $ 50,000 $ 27,700 $ 43,000 $ (20,700) 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 Dirt Bikes $ 932,000 468,000 $ 269,000 464,000 118,000 151,000 Mountain Bikes $ 407,000 196,000 Racing Bikes $ 256,000 154,000 211,000 102,000 69,400 8,800 40,200 20,400 44,100 20,500 7,900 15,700 114,100 40,200 38,500 35,400 186,400 53,800 81,400 51,200 414,000 123,300 168,000 122,700 $ 50,000 $ 27,700 $ 43,000 $ (20,700) 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.

Managerial Accounting: The Cornerstone of Business Decision-Making
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter8: Tactical Decision-making And Relevant Analysis
Section: Chapter Questions
Problem 45E
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Exercise 11-2 (Algo) Dropping or Retaining a Segment [LO11-2] 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 $ 932,000 468,000 464,000 Dirt Bikes $ 269,000 118,000 151,000 Mountain Bikes $ 407,000 Racing Bikes $ 256,000 196,000 211,000 154,000 102,000 69,400 8,800 40,200 20,400 44,100 20,500 7,900 15,700 114,100 40,200 38,500 35,400 186,400 53,800 81,400 51,200 414,000 123,300 168,000 122,700 $ 50,000 $ 27,700 $ 43,000 $ (20,700) 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.
Transcribed Image Text:Exercise 11-2 (Algo) Dropping or Retaining a Segment [LO11-2] 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 $ 932,000 468,000 464,000 Dirt Bikes $ 269,000 118,000 151,000 Mountain Bikes $ 407,000 Racing Bikes $ 256,000 196,000 211,000 154,000 102,000 69,400 8,800 40,200 20,400 44,100 20,500 7,900 15,700 114,100 40,200 38,500 35,400 186,400 53,800 81,400 51,200 414,000 123,300 168,000 122,700 $ 50,000 $ 27,700 $ 43,000 $ (20,700) 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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