The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a moun

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 Dirt Mountain Racing 300,000 $90,000 $150,000$ 60,000 120,000 27,000 60,00033,000 Total Bikes Bikes ikes Sales Variable manufacturing and selling expenses Contribution margin Fixed expensess 180,000 63,000 90,000 21-000 6,000 23,000 6,000 9,000 8,000 35,000 12,000 13.000 10.000 60,00018,00030,000 12,000 36000 Advertising, traceable 30,000 10.000 14,000 Depreciation of special equipment Salaries of product-1ine managers Allocated common fixed expenses 66.00? 48,00046,000 $ 32,000 $17,000 24,000 $ (9,000) Total fixed expenses Net 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 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 Complete this question by entering your answers in the tabs below.

Explanation / Answer

1 Current Total Total If Racing Bikes Are Dropped Difference: NetOperatingIncome Sales 300000 240000 -60000 Variable manufacturing and selling expenses 120000 87000 33000 Contribution margin (loss) 180000 153000 -27000 Fixed expenses: Advertising, traceable 30000 24000 6000 Depreciation on special equipment 23000 23000 0 Salaries of product manager 35000 25000 10000 Common allocated costs 60000 60000 0 Total fixed expenses 148000 132000 16000 Net operating income (loss) 32000 21000 -11000 Financial (disadvantage) ($11000) 2 No 3 Total Dirt Bikes Mountain Bikes Racing Bikes Sales 300000 90000 150000 60000 Variable manufacturing and selling expenses 120000 27000 60000 33000 Contribution margin (loss) 180000 63000 90000 27000 Traceable fixed expenses: Advertising, traceable 30000 10000 14000 6000 Depreciation on special equipment 23000 6000 9000 8000 Salaries of product manager 35000 12000 13000 10000 Total traceable fixed expenses 88000 28000 36000 24000 Product line segment margin 92000 35000 54000 3000 Common fixed expenses 60000 Net operating income (loss) 32000

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