Exercise 13-2 (Algo) Dropping or Retaining a Segment [LO13-2]The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Data on sales andexpenses for the past quarter follow:SalesVariable manufacturing and selling expensesContribution marginFixed expenses:Total$ 923,000467,000456, 000Required 1Advertising, traceable.Depreciation of special equipmentSalaries of product-line managersAllocated common fixed expenses*Total fixed expensesNet operating income (loss)*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 notthe line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear out.Required 2 Required 370, 50044, 100Dirt Bikes$ 265,000111, 000154,000114, 500184, 600413, 700$ 42,300Complete this question by entering your answers in the tabs below.< Required 18,60020, 60040, 70053,000122, 900$31, 100MountainBikes$ 408,000202, 000206, 000Required: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-runprofitability of the various product lines.41,0007,90038, 60081, 600169, 100$ 36,900What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?Required 2 >Racing Bikes$ 250,000154,00096,00020, 90015,60035, 20050,000121, 700$ (25, 700)

The purpose of preparing an income statement is to allow business entities to track their annual…

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) Total $ 923,000 467,000 456, 000 70, 500 44, 100 114,500 184, 600 413, 700 $42,300 Dirt Bikes $ 265,000 111, 000 154,000 8,600 20, 600 40, 700 53,000 122, 900 $31, 100 Mountain Bikes $408,000 202,000 206, 000 41,000 7,900 38,600 81, 600 169, 100 $ 36,900 Racing Bikes $ 250,000 154,000 96,000 20,900 15,600 35, 200 50,000 121, 700 $ (25,700) *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.

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter11: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 11.5.5P