The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a moun
ID: 2432941 • Letter: T
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 Bikes $920,000 262,000 407,000 251,000 483,000 118,000 208,000 157,000 Total Bikes Bikes Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses 437,000 144,000 199,000 94,000 8,600 20,900 40,700 52,400 20,200 16,000 Advertising, traceable 69,700 40,900 Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses 44,300 115,100 7,400 38,700 35,700 184,000 81,400 50,200 413,100 122,600 168,400 122,100 $ 23,900 21,400 30,600 $ (28,100) 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.Explanation / Answer
Answer:
1
Particulars
Current
Total
Total if
racing bike
Discontinue
Difference
Net operating
income/
(decrease)
Sales
920,000
669,000
-251,000
Less: Variable manufacturing & selling expenses
483,000
326,000
157,000
Contribution margin
437,000
343,000
-94,000
Less: Fixed expenses:
Advertising, direct
69700
49500
20200
Depreciation of special equipment
44300
44300
0
Salary of line supervisor
115100
79400
35700
Common, but allocated*
184000
184000
0
Total fixed expenses
413100
357200
55900
Net income (loss)
23,900
-14,200
-38,100
2
Should production and sale of the racing bikes be discontinued?
Answer: NO
3
Total
Dirt
Bike
Mountain
Bike
Racing
Bike
Particulars
920,000
262000
407000
251,000
Sales
483,000
118000
208000
157,000
Less: Variable manufacturing & selling expenses
437,000
144,000
199,000
94,000
Contribution margin
Less: Tacable fixed cost
Advertising, direct
69700
8600
40900
20200
Depreciation of special equipment
44300
20900
7400
16000
Salary of line supervisor
115100
40700
38700
35700
Total: Tacable fixed cost
229100
70200
87000
71900
Product line segment Margin
207,900
73,800
112,000
22,100
Common fixed expenses
184000
Net income (loss)
23,900
4
Would a segmented income statement format be more usable to management in assessing the long-run profitability of the various product lines
Answer: Yes
Particulars
Current
Total
Total if
racing bike
Discontinue
Difference
Net operating
income/
(decrease)
Sales
920,000
669,000
-251,000
Less: Variable manufacturing & selling expenses
483,000
326,000
157,000
Contribution margin
437,000
343,000
-94,000
Less: Fixed expenses:
Advertising, direct
69700
49500
20200
Depreciation of special equipment
44300
44300
0
Salary of line supervisor
115100
79400
35700
Common, but allocated*
184000
184000
0
Total fixed expenses
413100
357200
55900
Net income (loss)
23,900
-14,200
-38,100
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.