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 $ 924,000   $ 264,000   $ 407,000   $ 253,000   Variable manufacturing and selling expenses   477,000     115,000     209,000     153,000   Contribution margin   447,000     149,000     198,000     100,000   Fixed expenses:                         Advertising, traceable   69,800     8,100     40,900     20,800   Depreciation of special equipment   44,100     20,700     7,800     15,600   Salaries of product-line managers   113,800     40,000     38,600     35,200   Allocated common fixed expenses*   184,800     52,800     81,400     50,600   Total fixed expenses   412,500     121,600     168,700     122,200   Net operating income (loss) $ 34,500   $ 27,400   $ 29,300   $ (22,200)       *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.   REQUIRED 1   What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes?         Financial (disadvantage) per quarter   REQUIRED 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.           Totals Dirt Bikes Mountain Bikes Racing Bikes                     Contribution margin (loss) 0 0 0 0 Traceable fixed expenses:                                       Total traceable fixed expenses 0 0 0 0 Product line segment margin (loss) 0 $0 $0 $0       Net operating income (loss) $0

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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:

 

  Total Dirt
Bikes
Mountain Bikes Racing
Bikes
Sales $ 924,000   $ 264,000   $ 407,000   $ 253,000  
Variable manufacturing and selling expenses   477,000     115,000     209,000     153,000  
Contribution margin   447,000     149,000     198,000     100,000  
Fixed expenses:                        
Advertising, traceable   69,800     8,100     40,900     20,800  
Depreciation of special equipment   44,100     20,700     7,800     15,600  
Salaries of product-line managers   113,800     40,000     38,600     35,200  
Allocated common fixed expenses*   184,800     52,800     81,400     50,600  
Total fixed expenses   412,500     121,600     168,700     122,200  
Net operating income (loss) $ 34,500   $ 27,400   $ 29,300   $ (22,200)  
 

 

*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.

 

REQUIRED 1

 

What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes?

 
 
 
 
Financial (disadvantage) per quarter

 

REQUIRED 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.

 
 
 
 
  Totals Dirt Bikes Mountain Bikes Racing Bikes
         
         
Contribution margin (loss) 0 0 0 0
Traceable fixed expenses:        
         
         
         
Total traceable fixed expenses 0 0 0 0
Product line segment margin (loss) 0 $0 $0 $0
     
Net operating income (loss) $0
 
 

 

 

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