FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
Bartleby Related Questions Icon

Related questions

Question

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
 
 

 

 

Expert Solution
Check Mark
Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education