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 Bikes Mountain Racing Bikes Total Bikes Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: $ 928,000 $269,000 485,000 254,000 152,008 102,006e 468,90e 113,900 460,000 156,000 203,008 202,006e Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses 8,400 43,300 20,90e 115, 300e 40, 50e 53,800 413, 300 123,600 69,100 40,500 20, 200 15,100 36,800 50,800 122,906e 7, 300 38,800 81,000 166, 806e 32,400 $ 35,200 $(20,900) 185,608 Total fixed expenses Net operating income (loss) $ 46,700 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 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Financial (disadvantage) per quarter Required2 >

Explanation / Answer

1 Current Total Total If Racing Bikes Are Dropped Difference: NetOperatingIncome Sales 928000 674000 -254000 Variable manufacturing and selling expenses 468000 316000 152000 Contribution margin (loss) 460000 358000 -102000 Fixed expenses: Advertising, traceable 69100 48900 20200 Depreciation on special equipment 43300 43300 0 Salaries of product manager 115300 78500 36800 Common allocated costs 185600 185600 0 Total fixed expenses 413300 356300 57000 Net operating income (loss) 46700 1700 -45000 Financial (disadvantage) ($45000) 2 No 3 Total Dirt Bikes Mountain Bikes Racing Bikes Sales 928000 269000 405000 254000 Variable manufacturing and selling expenses 468000 113000 203000 152000 Contribution margin (loss) 460000 156000 202000 102000 Traceable fixed expenses: Advertising, traceable 69100 8400 40500 20200 Depreciation on special equipment 43300 20900 7300 15100 Salaries of product manager 115300 40500 38000 36800 Total traceable fixed expenses 227700 69800 85800 72100 Product line segment margin 232300 86200 116200 29900 Common fixed expenses 185600 Net operating income (loss) 46700

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